Does the P2P Credit Spread Predict Economic Activity? Evidence from LendingClub

Abstract

Peer-to-Peer (P2P) lending, which makes borrowers and investors meet directly through online platforms bypassing traditional financial institutions, is an emerging financing market after the traditional financial institutions crushed during the global financial crisis from 2007 to 2009. P2P lending platforms meet the credit demand more efficiently and play a vital role for the credit market and economic activity. This study sheds light on whether the credit spread of P2P lending is well predictive of economic activity compared to the bond credit spread which has been fully investigated in prior studies. Our findings show that the P2P credit spread performs similarly in predicting the economic activity as bond credit spread only during the financial crisis. However, the predictive power of P2P credit spread becomes inverse during the noncrisis periods since P2P lending platforms provide an alternative and easier financing channel to individuals who hardly borrow money for refinancing from traditional financial institutions. This study highlights the alternative role of P2P lending platform in financing and provides the evidence of different predictive powers of P2P credit spread on economic activity in different time periods.

Citation

Ho, A.Y.-F., Lin, W.-C. and Yu, H.-Y. (2022), "Does the P2P Credit Spread Predict Economic Activity? Evidence from LendingClub", Lee, C.-F. and Yu, M.-T. (Ed.) Advances in Pacific Basin Business, Economics and Finance (Advances in Pacific Basin Business, Economics and Finance, Vol. 10), Emerald Publishing Limited, Leeds, pp. 59-90. https://doi.org/10.1108/S2514-465020220000010003