Description:
Based on microdata from a large Peer-to-Peer (P2P) lending platform, this paper explores P2P investors’ perception of the platform’s role when making P2P investment decisions. Inconsistent with the regulation assumption that investors primarily evaluate the risks of their investment projects, investors are more sensitive to P2P platform news. Several factors, such as physical distance between investors and borrowers, and lack of financial knowledge and motivation to monitor, limited their ability to collect and use information from other borrowers. As a result, the platforms appeared an effective alternative to evaluating borrower risk. Our results suggest that misdesigned regulation, that ignored platforms’ risk-shifting possibility, may have contributed to the P2P industry’s collapse, which cost nearly 500 billion RMB and thousands of people’s pensions