Income Rounding and Loan Performance in the Peer-to-Peer Market

Eid, Nourhan and Maltby, Josephine and Talavera, Oleksandr (2016): Income Rounding and Loan Performance in the Peer-to-Peer Market.

Abstract

This paper uses a unique dataset from Lending Club (LC), the largest online lender in the U.S, to analyze the consequences of income rounding in terms of loans performance. We find that rounding of income by a borrower may indicate a bad outcome for a loan. Borrowers with a rounding tendency are more likely to default and less likely to prepay than borrowers with more accurate income reporting. Furthermore, investors are not compensated for the extra risk associated with rounding. Borrowers who misreport income by means of rounding obtain lower interest rates and larger loans with longer maturity than those who do not round. These results are consistent across various specifications and sub-samples.

• Item Type: MPRA Paper
• Language: English
• Keywords: Peer-to-Peer (P2P) lending, Rounding, Misreporting, Performance
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G2 - Financial Institutions and Services > G20 - General

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