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The information value of online social networks: Lessons from peer-to-peer lending

Listed author(s):
  • Freedman, Seth
  • Jin, Ginger Zhe
Registered author(s):

    We examine whether social networks facilitate online markets using data from a leading peer-to-peer lending website. We find that borrowers with social ties are consistently more likely to have their loans funded and receive lower interest rates; however, most borrowers with social ties are more likely to pay late or default. We provide evidence that these findings are driven by lenders not fully understanding the relationship between social ties and unobserved borrower quality. Overall, our findings suggest caution for using online social networks as a signal of quality in anonymous transactions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167718716302776
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    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 51 (2017)
    Issue (Month): C ()
    Pages: 185-222

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    Handle: RePEc:eee:indorg:v:51:y:2017:i:c:p:185-222
    DOI: 10.1016/j.ijindorg.2016.09.002
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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