Why borrowers with better reputations are more likely to default? an empirical analysis on the online loan borrowers’ behavior

Abstract

The online P2P lending platform has broken through the multiple audit and mortgage systems of traditional borrowing channels and provided a more convenient lending channel for online lending. But it also greatly increased the borrowing risk of investors because of default behavior from online loan borrowers. It is of great significance to identify the default probability for protecting the interests of investors and the sustainable development of the online lending platform. Therefore, this paper attempts to explore the relationship between the online reputation of the borrower and the borrower’s default behavior in the P2P lending platform, and concludes that the better the historical reputation of the borrower, the more serious the default behavior is. Then by introducing the intermediary variable of the loan amount, it is found that the borrower's good historical repayment record can make it obtain more loan amount. The more loan amount makes the borrower's repayment pressure sharply increase, which leads to more defaults. Therefore, in response to this phenomenon, we introduced moderator variables (certifications and credit ratings), and found that when the number of certifications carried out by the borrower itself is large, the borrower’s reputation will have an enhancement effect to its positive effect on defaults. When the borrower's credit rating offered by the platform is high, the positive effect of the borrower's reputation on its default behavior will be weakened. Therefore, it is necessary to strengthen the credit rating of the borrower by the platform and reduce the borrower's active certification to avoid abuse of the certification system and fraudulent loans.