DOES SKIN IN THE GAME MITIGATE INFORMATION ASYMMETRY AMONG LOAN ORIGINATORS AND INVESTORS IN P2P PLATFORMS? EVIDENCE FROM MINTOS

Abstract

The rapid growth of the European P2P lending market has led to the emergence of a unique lending model called resale marketplace lending. This structure involves P2P platforms connecting investors with loan originators who resell pre-originated loans. Yet, the extant literature lacks studies examining the complexities arising from such lending structure. This study examines the information asymmetry challenge in such lending structure through a skin in the game mechanism on the Mintos platform. By analyzing 1,983,334 listed loans, we find that skin in the game significantly mitigates information asymmetry, reflected in lower interest rates, reduced likelihood, and severity of default. Our findings suggest that loan originators are incentivized to ensure the successful performance of the loans they offer and also strategically signal the commitment and trust by bearing a higher level of skin in the game. These findings hold important implications for enhancing information symmetry within resale marketplace lending platforms.