Document Type
Working Paper
Publication Date
6-30-2015
College/Unit
Chambers College of Business and Economics
Document Number
15-28
Department/Program/Center
Economics
Abstract
This study is interested in the ability of borrowers and lenders to signal to each other in the peer-to-peer lending market. We focus on small business loans and investigate the relationship between the loan description that a borrower provides and the impact of this description on the potential funding of the loan by investors. We find that the loan descriptions in the data can be used to predict the probability that the entire loan will be funded. In addition, we also find that an index created from a textual analysis of the loan description can be used to forecast the performance of the loan; a 1 standard deviation increase in the index will decrease the odds of default by 14%. Thus, it appears as if investors are not making investment decisions based on improper signals.
Digital Commons Citation
Nowak, Adam; Ross, Amanda; and Yencha, Christopher, "Small Business Borrowing and Peer-to-Peer Lending: Evidence from Lending Club" (2015). Economics Faculty Working Papers Series. 161.
https://researchrepository.wvu.edu/econ_working-papers/161