Performance determinants of China's internet lending business: a study on the regulated and unregulated companies

In recent years, commercial internet lending has become a major industry in China, and internet lending platforms have also begun using innovative ways to mobilize and disseminate small business capitals. However, these platforms are not well managed as there has been an increase in the number of defaults in recent years. In order to strengthen the governance of the internet lending business, China’s newly established National Internet Finance Association (NIFA) has introduced some regulations aiming at reducing the risk of defaults and enhancing performance of its regulated members as a way to improve competitiveness. The objective of this study is to identify the performance determinants of China’s regulated and unregulated internet lending companies. Using the binary logistic regression method, this study will investigate the differences of the two types of lending platforms through comparison. We used 343 platforms based on one-month’s data so as to explore the differences. Our study provides evidence showing the existence of four performance determinants for both regulated and unregulated companies; namely, total transactions, number of investors, loan periods, and interest rates. These determinants could be used by individual investors to avoid potential risk and investment decision making while being instrumental for the policymakers when regulating this market.

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