Inaccurate Borrower Information and Credit Risk: Evidence from Marketplace Loans

Abstract Inaccurate borrower-provided information in marketplace loans is informative about credit risk. An inaccuracy index constructed from the consistency of loan amount with outstanding credit balance, roundness of reported income, and roundness of chosen loan amount predicts the likelihood of default, and the additional default risk is not compensated by higher interest. Inaccurate information is more prevalent in areas with lower social capital and weaker social norms. It is also lower among borrowers whose professions are considered less honest, and among borrowers with higher income uncertainty. These results suggest that inaccuracy is driven by both deliberate misreporting and genuine uncertainty. (JEL D12, D91, G23, G41) Received: 6 April 2023; Editorial decision: 31 March 2024 Editor: Isil Erel Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.