Exploring lending patterns for information asymmetry between lenders and borrowers in the nonprofit and forprofit peer-to-peer lending platforms

Abstract

The emergence of the Peer-to-peer (P2P) lending platform has attracted scholars to examine how borrowers’ characteristics affect lending decision and loan performance in online setting. Existing studies have not conceptualized the P2P lending model and discussed whether the P2P lending model would be affected by the nonprofit and forprofit ownership of the P2P lending platform. This dissertation is to explore how the nonprofit and forprofit P2P lending platforms design the lending model to solve information asymmetry between lenders and borrower based on the principal-agent perspective in agency theory. This research regards the lender as the principal, the borrower as the agent, and the P2P lending platform as the third party. This research adopts case study method and selects Kiva.org as the nonprofit case and Prosper.com as the forprofit case. Case study method enables us to explore agency costs, including monitoring costs and bonding costs, between lenders and borrowers in two cases. This research finds that monitoring costs and bonding costs consist of personnel costs, administration and management costs, training costs, and others. The main research finding is that the nonprofit platform spends training costs to monitor borrowers while the forprofit platform does not. The training cost might explain why the nonprofit platform has higher repayment rate and lower default rate than the forprofit platform does, which is consistent with the previous research finding that nonprofits tend to have higher service quality under information asymmetry market. This research finding implies that the nonprofit ownership might contribute to the better performance of the P2P lending platform.