The Signaling Value of Online Social Networks: Lessons from Peer-to-Peer Lending
AbstractWe examine whether social networks facilitate online markets using data from a leading peer-to-peer lending website. Borrowers with social ties are consistently more likely to have their loans funded and receive lower interest rates. However, most social loans do not perform better ex post, except for loans with endorsements from friends contributing to the loan or loans with group characteristics most likely to provide screening and monitoring. We also find evidence of gaming on borrower participation in social networks. Overall, our findings suggest that return-maximizing lenders should be careful in interpreting social ties within the risky pool of social borrowers.
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Date of creation: Jan 2014
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Find related papers by JEL classification:
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-24 (All new papers)
- NEP-BAN-2014-01-24 (Banking)
- NEP-SOC-2014-01-24 (Social Norms & Social Capital)
- NEP-URE-2014-01-24 (Urban & Real Estate Economics)
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