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Too long to be true in the description? Evidence from a Peer-to-Peer platform in China

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Listed:
  • Li, Zhiyong
  • Zhang, Haiyang
  • Yu, Mei
  • Wang, Hairan

Abstract

This paper explores how loan descriptions provided by borrowers influence both the lenders’ and the platform’s behaviour in granting loans and setting interest rates. The empirical results show that textual length serves as a strong signal to identify the borrowers' quality. Strategic signalling theories cannot explain the borrowers' behaviour in China. We further show that the peer-to-peer platform is able to benefit from taking description length into consideration and that there exists room for investors to benefit from this information.

Suggested Citation

  • Li, Zhiyong & Zhang, Haiyang & Yu, Mei & Wang, Hairan, 2019. "Too long to be true in the description? Evidence from a Peer-to-Peer platform in China," Research in International Business and Finance, Elsevier, vol. 50(C), pages 246-251.
    • Handle: RePEc:eee:riibaf:v:50:y:2019:i:c:p:246-251
    DOI: 10.1016/j.ribaf.2019.06.005
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    References listed on IDEAS

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    1. Dina Mayzlin & Jiwoong Shin, 2011. "Uninformative Advertising as an Invitation to Search," Marketing Science, INFORMS, vol. 30(4), pages 666-685, July.
    2. Iyer, Rajkamal & Khwaja, Asim Ijaz & Luttmer, Erzo F. P. & Shue, Kelly, 2009. "Screening in New Credit Markets: Can Individual Lenders Infer Borrower Creditworthiness in Peer-to-Peer Lending?," Working Paper Series rwp09-031, Harvard University, John F. Kennedy School of Government.
    3. Kosuke Uetake & Ken ONISHI & Kei Kawai, 2013. "Signaling in Online Credit Markets," 2013 Meeting Papers 516, Society for Economic Dynamics.
    4. Dorfleitner, Gregor & Priberny, Christopher & Schuster, Stephanie & Stoiber, Johannes & Weber, Martina & de Castro, Ivan & Kammler, Julia, 2016. "Description-text related soft information in peer-to-peer lending – Evidence from two leading European platforms," Journal of Banking & Finance, Elsevier, vol. 64(C), pages 169-187.
    5. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    6. Mingfeng Lin & Nagpurnanand R. Prabhala & Siva Viswanathan, 2013. "Judging Borrowers by the Company They Keep: Friendship Networks and Information Asymmetry in Online Peer-to-Peer Lending," Management Science, INFORMS, vol. 59(1), pages 17-35, August.
    7. Jefferson Duarte & Stephan Siegel & Lance Young, 2012. "Trust and Credit: The Role of Appearance in Peer-to-peer Lending," The Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2455-2484.
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    Cited by:

    1. Wang, Chao & Wang, Junbo & Wu, Chunchi & Zhang, Yue, 2023. "Voluntary disclosure in P2P lending: Information or hyperbole?," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    2. Chen, Rongda & Chen, Xinhao & Jin, Chenglu & Chen, Yiyang & Chen, Jiayi, 2020. "Credit rating of online lending borrowers using recovery rates," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 204-216.

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    More about this item

    Keywords

    Peer-to-Peer lending; Signalling; Description length;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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