Mass Shootings and Peer-to-Peer Lending: How Do Local Shocks Affect Platform Lending Behavior?

Abstract

This paper analyzes the effect of mass shootings on peer-to-peer lending behavior and credit access. The study uses data from a national gun violence tracker and a major peer-to-peer online lending platform for 2014-2018. We use a difference-in-differences methodology to exploit the quasi-experimental nature of mass-shooting incidents. The results show that relative to the control group (zip codes with no mass-shooting incidents), individuals from treatment zip codes (those with mass-shooting incidents) are approved for lower loan amounts, with higher interest rates, and shorter loan terms. Both principal and interest rates' repayment decreases immediately after a mass shooting relative to the control group, resulting in increases of charge offs for the lenders. Additionally, the interest rate spread increases, while volatility seems to decrease. These results are further amplified, the higher the severity level of the mass-shooting incidents. These results highlight that online credit marketplaces are reactive to random local shocks at the community level.