Born in Crisis: Early Impact of COVID-19 Pandemic on P2P Lending Market

Abstract

This paper empirically investigates the impact of COVID-19 pandemic on liquidity risk incurred by peer-to-peer (P2P) lending market. As the COVID-19 pandemic adversely affects the financial markets, there is a need for better understanding of the dynamics of successful P2P lending under the conditions of financial distress. Using the secondary market listings dataset of Bondora P2P lending platform based in Estonia, we provide evidence of the pandemic induced exposure to liquidity risk in P2P lending market. Despite increased volatility in the financial markets, the results show that COVID-19 risk increases the probability of successful listing during the period of a pandemic. Further analysis shows that there is a negative association between COVID-19 risk and share of overdue loans and average overdue days in the secondary market listings. Our results are robust to sample selection bias through Heckman two-stage regression models and bootstrapping. The findings of this study imply certain early tendencies in the financial market during the pandemic induced turmoil and open broad room for further research.