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Why do borrowers default on online loans? An inquiry of their psychology mechanism

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Purpose

In the online microloan market, the ability to evaluate the credit risk of borrowers is key to business success. Based on the general strain theory, this study proposes a contextualized two-stage model with stress factors, negative affects and constraint factors to explain the psychological mechanism of borrowers' default behaviors.

Design/methodology/approach

An online survey is conducted to test the hypotheses. We collect and analyze 713 valid responses through a structural equation model.

Findings

(1) Economic and social strains experienced by borrowers can cause four types of negative affects: life dissatisfaction, perceived unfairness, inferiority feeling and loneliness; (2) Both strains and negative affects have a considerable effect on borrowers' default intention; (3) Moral norm plays a negative moderating role in the relationship between strains, negative affects and default behavior, whereas perceived deterrence shows a strong main effect.

Originality/value

(1) This study introduces the GST from sociology and criminology, and contextualizes it in the microloan context to explain default behavior; (2) This study provides a comprehensive and staged psychological mechanism to explain deviant behavior; (3) This study bears critical implications for the current practice in credit assessment and default prevention.
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Keywords: Credit assessment; Default intention; General strain theory; Microloan; Negative affects; Psychology

Document Type: Research Article

Affiliations: 1: School of Economics and Management, Nanjing University of Science and Technology, Nanjing, China 2: School of Management, Fudan University, Shanghai, China

Publication date: April 10, 2020

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