Can policy intervention induce a flight to quality: an analysis of the closing of the Chinese P2P market

ABSTRACT

In this letter, we study the P2P behavioural finance which addresses an effect of flight to quality under certain policy interventions. We apply the date of loan transactions from a Chinese peer-to-peer (P2P) lending platform and construct a regression discontinuity design to detect the effect of government policy intervention with the closing of the P2P market. We find that strict policy interventions have significant impacts on investors’ behaviours, which lead the investors to downgrade their expectations of the credit levels of the loan. Such impacts on investor behaviour induce a flight-to-quality scenario of the P2P market.

KEYWORDS:

• P2P
• financial regulation
• regression discontinuity design
• credit availability

GEL CLASIFICATION:

• G23

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The breakpoint set corresponds to when the P2P regulatory policy was issued in December 2017.

Additional information

Funding

This work was supported by the National Social Science Foundation of China [19CKS051].