In recent years, numerous Chinese peer-to-peer (P2P) lending platforms have collapsed, prompting us to investigate the regulation and monitoring of the fintech industry. Using a unique dataset of P2P lending platforms in China, we examine the effect of government monitoring on platform collapses. Exploiting platforms’ locational proximity to regulatory offices as a proxy for government monitoring, we show that greater geographical distance results in a higher likelihood of platform collapse. Specifically, for every 10% increase in the driving distance from the platform to the local regulatory office, the likelihood of collapse increases by 10.2%. To establish causality, we conduct a differencein-differencesanalysis that exploits two exogenous shocks: government office relocation and subway station openings. We further explore two underlying channels: the information channel through which greater regulatory distance reduces the likelihood of regulators’ onsite visits and the resource constraint channel, through which greater regulatory distance significantly increases the local regulatory office’s monitoring costs. Overall, this study highlights the importance of onsite regulatory monitoring to ensure the viability of online lending platforms.

In recent years, numerous Chinese peer-to-peer (P2P) lending platforms have collapsed, prompting us to investigate the regulation and monitoring of the fintech industry. Using a unique dataset of P2P lending platforms in China, we investigate the effect of the information environment on regulatory monitoring and platform collapse. Using the platforms’ proximity to regulatory offices as a proxy for information asymmetry, we show that an increase in distance reduces regulatory monitoring and increases the likelihood of platform collapse. Specifically, for every 1% increase in the driving distance between the local regulatory office and a P2P lending platform’s office, the platform’s likelihood of collapse increases by 1.011%. To establish causality, we conduct a difference-in-differences analysis that exploits two exogenous shocks: government office relocation and subway station openings. We provide evidence that proximity enhances monitoring quality by facilitating soft information collection, reducing platform failures. We further find two channels of this effect: (1) the information channel through which greater regulatory distance reduces the likelihood and frequency of regulators’ on-site visits and (2) the resource-constraint channel, through which greater regulatory distance significantly increases the local regulatory office’s monitoring costs. Overall, this study highlights the importance of the acquisition of soft information for regulatory monitoring to ensure the viability of fintech firms.