| With the rapid progress of the peer to peer lending industry,more and more failure cases of all kinds of P2 P platforms have been showed up.One of the most severe problems is the credit risk or default risk.Similar to traditional financial institutions,effectively controlling and reducing the credit risk within the transactions is the highly focused topic within the peer to peer lending industry.On December 19 th 2010,Prosper,one of the global leader of the Peer to Peer lending market,announced to change its loan interest rate decision strategy from Dutch auction-like system to preset by platform,which has been used by Lendingclub.This strategy change directly reflects the role transfer of Prosper from the connecting bridge into participating in the loan business.In order to minimize the credit risk of peer to peer lending industry,this paper research on both the Dutch autcion-like and platform preset interest rate strategy.Based on the strategy comparison,suggestion for peer to peer lending industry operation has been presented.Firstly,based on the difference in difference model,this paper compared the historic loan transaction data of Prosper and Lendingclub from 2008 to 2014 to test whether the interest rate decision strategy changed borrowers’ loan default behavior.Secondly,the overall sample was divided into sub-samples based on the loan amont,interest rate and loan term.The impact of the strategy change on different sub-samples was compared.Thirdly,in order to test the roubustenss of the hypothesis,the original data set is shortened to Year 2009-2012,the empirical analysis is conducted again and results are discussed accordingly.Stata has been used for empirical analysis.The empirical study results indicate that:(1)Difference in difference estimator is significantly negative under the level of 1%,which indicates that the strategy change of Prosper platform effectively control the default risk of platform borrowers.(2)loans with high loan amount,low loan interest rate and short term tend to be more influenced by the platform interst strategy change.(3)the platform-based interest rate decision strategy is robust with the rapid change of financial environment.In the thesis,empirical study shows that the platform preset interest rate strategy is much better than the previous auction-like strategy.On one hand,the research offers the theoretical basis for P2 P platforms’ interest rate decision strategy and other related decision making.On the other hand,it brings in more evidence for platform strategy on account of different kinds of borrowers and loan transactions. |
