Self-construals, Cultural Difference and Credit Risk: Evidence from Internet Finance

Zhang Yiwei; Gao Weihe

doi:doi:10.16538/j.cnki.jfe.2020.01.003

Summary

Although the internet financial market has risen rapidly recently in China, the high default rate has become a constraint to the healthy development of the industry. Because " soft information” can provide additional reliable signals about borrowers’ true credit risk, the related research in credit evaluation has been already the most cutting-edge trend. However, currently there is little research on the mining of SMS.

Based on borrowers’ SMS, this research studies the impact of different self-construals on default by mining the quantities of " I” and " we”. As a kind of self-cognition of consumers, self-construals directly affect consumers’ credit decision-making behavior by influencing their thinking mode, and indirectly influence consumers’ credit decision-making behavior by changing their resource constraints. We propose that borrowers with interdependent self-construals have lower default rates than those with independent self-construals.

Self-construals are influenced by culture. The different tendency of collectivism and individualism in north and south of China leads to the difference of self-construals. We believe that the southerners are more interdependent and the northerners are more independent, which leads to a relatively low default rate in the south. The relationship between self-construals and credit risk is also influenced by education. Education will change people’s thinking mode and reduce resource constraints, so as to weaken the positive effect of independent self-construals and strengthen the negative effect of interdependent self-construals on default.

Our data come from a well-known financial technology company in China. We receive a total of 13 799 samples from July to December 2017, including 317 872 text messages from users. We mainly use Logit regression and negative binomial regression to analyze the data, and find that there is a significant correlation between self-construals and credit risk. Borrowers with independent self-construals have higher default rates, while borrowers with interdependent self-construals have lower default rates. We also find that the southerners show stronger interdependent self-construals and the default rate is relatively low. The education level not only reduces the default rate of borrowers, but also significantly moderates the effect of self-construals on credit risk.

This paper offers a number of contributions: First, we further verify the validity and importance of " soft information” (SMS). In the absence of enough hard information, financial technology companies can make full use of these " soft information” to portray borrowers and evaluate their credit risk. Second, previous studies have suggested that different self-construals affect people’s risk behaviors, but do not link them to consumer credit. Our research finds that there is a significant relationship between these two variables. The more the borrower emphasizes himself, the higher the default rate; and the more important the social relationship, the lower the default rate. Third, the literature on the impact of culture on self-construals focuses more on the difference between China and the West, and less on the difference in self-construals between the North and the South in China. Through the empirical analysis, this paper finds that the southerners have a stronger tendency of interdependent self-construals.