The Impact of Venture Capital Investment on the Performance of Peer‐to‐Peer Lending Platforms: Evidence from China

Abstract

The Chinese peer-to-peer (P2P) lending market is expanding quickly but has a relatively poor level of operation. Using panel-structured data from a leading P2P lending portal in China, we investigate the effects of venture capital (VC) investment on the performance of P2P lending platforms. Specifically, we identify a short-term signaling effect and a long-term governance effect of VC investment on platform performance in terms of transaction volume, and numbers of lenders and borrowers. However, we only find a decrease in average interest rates after venture capitalists' (VCs') entry in the long run. Moreover, we verify both the effects of investment from listed VCs, but no signaling effect and a weak governance effect of investment from non-listed VCs. Our analysis provides new insights into how VC investment improves the performance of target firms.

The Impact of Guarantees on Peer-to-Peer Lending Platform: Evolutionary Game Analysis and Empirical Evidence from China

“…As for peer-to-peer lending, a great number of researches focused on investigating the factors that determine the market performance, including transaction volume [5,17,32] and funding success rate [12,33,34]. For instance, Duarte et al [33] investigated the impact of the characteristics of the borrower on funding success rate.…”

“…In addition, Luo and Gu [17] constructed a two-stage fixed effects regression model when dealing with the endogeneity problem of the scale of users, while this research applied the simultaneous equation model. Actually, simultaneous equation model is commonly applied in researches on peer-to-peer lending platforms, especially the test for the existence of cross-group externalities, such as the study of Gu et al [5], Xue and Zuo [57]. In contrast to the previous researches [5,57], the simultaneous equation model constructed in this research also considered the interaction between the interest rate and the scale of users; that is, interest rate was also regarded as an endogenous variable, and three equations were established in the model, to make the results of the simultaneous equation model more applicable.…”

“…Actually, simultaneous equation model is commonly applied in researches on peer-to-peer lending platforms, especially the test for the existence of cross-group externalities, such as the study of Gu et al [5], Xue and Zuo [57]. In contrast to the previous researches [5,57], the simultaneous equation model constructed in this research also considered the interaction between the interest rate and the scale of users; that is, interest rate was also regarded as an endogenous variable, and three equations were established in the model, to make the results of the simultaneous equation model more applicable. Specifically, we constructed Equations ( 5) and ( 6) as the empirical models to analyze the impact of the guarantee mechanism.…”

“…The rapid pervasiveness of information and communication technology (ICT) has enabled numerous business opportunities and reconstructed the traditional business model [1,2], thus giving birth to peer-to-peer lending [3]. Through the creation of an online communication and transaction environment, peer-to-peer lending increases the effectiveness and efficiency of financing activities, acting as an appealing financing channel [4,5]. Given ICT's intrinsic attributes of instantaneity and ubiquity [6], peer-to-peer lending has achieved a rapid development in both business practice (the transaction volume of China's peer-to-peer lending industry from 2011 to 2019 is shown in Figure 1) and academic fields.…”

Venture Capital Backing and Issuance of Seasoned Equity Offerings: Evidence from China*

“…Earlier studies mainly reveal the effect of VC on start‐ups with regard to initial public offerings (IPOs) (Megginson and Weiss, 1991; Brav and Gompers, 1997; Francis and Hasan, 2001; Lee and Wahal, 2004; Tian, 2011; Chung et al ., 2017). In fact, VC has a long‐term impact on start‐ups after IPOs (Gu et al ., 2019). We empirically analyze whether VC affects seasoned equity offerings (SEOs) in China’s A‐share market.…”