The Failures of Peer-to-Peer Lending Platform Finance and Politics

We investigate the influence of financial and political factors on Peer-to-Peer (P2P) platform failures in the online lending market in China. Using a competing risk model for platform survival, we show that large platforms, platforms having listed firms as large shareholders and platforms with better information disclosure are less likely to go bankruptcy or run off with investors' funds. More importantly, falling platforms are much less likely to run off in advance of important political events, but more likely to go bankruptcy or run off after these events. These effects are more pronounced, among platforms that are more politically connected, and platforms operating in provinces where local officials have close central-local political ties, and when there is a better local financial condition. Our study highlights the role of political incentives on government regulatory intervention of platform failures