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Is there an effective reputation mechanism in peer-to-peer lending? Evidence from China

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  • Ding, Jie
  • Huang, Jinbo
  • Li, Yong
  • Meng, Meichen

Abstract

Using more than 178,000 borrowing listings in a Chinese online peer-to-peer (P2P) platform, we examine whether there is an effective reputation mechanism in P2P lending. The empirical results indicate that borrowers with better historical performance can obtain loans at a higher probability and lower cost. This indicates that lenders take borrowers’ reputation as a key signal in their lending decisions. Moreover, a good reputation can reduce borrowers’ default probability. We conclude that in P2P lending, there is an effective reputation mechanism that can discipline borrowers’ behavior.

Suggested Citation

  • Ding, Jie & Huang, Jinbo & Li, Yong & Meng, Meichen, 2019. "Is there an effective reputation mechanism in peer-to-peer lending? Evidence from China," Finance Research Letters, Elsevier, vol. 30(C), pages 208-215.
    • Handle: RePEc:eee:finlet:v:30:y:2019:i:c:p:208-215
    DOI: 10.1016/j.frl.2018.09.015
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    More about this item

    Keywords

    Peer-to-peer lending; Reputation mechanism; Asymmetric information;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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