Influence of Borrower Information Asymmetry on P2P Lending Interest Rates: A Principal-Agent Perspective

Abstract

This study employs principal-agent theory to examine the impact of various factors on the interest rates of three stakeholders in online loan transactions: investors, borrowers, and the lending platform, under the condition of an expected net income of zero. By elucidating the mechanisms through which these factors influence interest rates, investors can assess the appropriateness of the rates offered by the lending platform and gauge the associated risk levels. The analysis reveals that the likelihood of a borrower's loan being approved is crucial in determining online loan interest rates. Borrowers can affect investors' perceptions by withholding information about their success rates, thereby influencing the interest rates. Additionally, the income generated by the platform and its management of funds indirectly affect online loan interest rates through the platform's probability of sustained operation.