IDEAS home Printed from https://ideas.repec.org/a/spr/elcore/v23y2023i2d10.1007_s10660-021-09503-x.html
   My bibliography  Save this article

Shill bidding in lenders’ eyes? A cross-country study on the influence of large bids in online P2P lending

Author

Listed:
  • Dongyu Chen

    (Soochow University)

  • Xiaolin Li

    (Towson University)

  • Fujun Lai

    (Soochow University
    University of Southern Mississippi)

Abstract

This research examines the perception of shill bidding in the online peer-to-peer (P2P) lending market by looking into the influence of existing large bids of a loan request (also known as a borrower listing) on the investment decisions of potential lenders who are interested in this listing. We use two panel data sets of funding dynamics of borrower listings from two separate P2P lending platforms, XLending.com in China and YLending.com in the US. We identify the anti-herding effect of large bids using within-loan variations in the amount received in each period, the lagged cumulative number of large bids, and other observable time-varying listing attributes. The analysis reveals that large bids of a listing have a negative impact on the listing’s funding from potential lenders (i.e., the anti-herding effect) both in China and in the U.S. The finding suggests that, when making bidding decisions, lenders in an online P2P lending market are influenced by the perception of Internet shillings. Our analyses also suggest that this anti-herding effect of large bids is moderated by the number of bids. Interestingly, the examination of the association between large bids and ex-post loan default reveals a negative association, indicating the credit signaling functionality of large bids. The evident disparity between the reality (credit signaling of large bids) and bidders’ perception (the presence of large bids perceived as the result of Internet Shilling) illustrates an amplifying erosive effect of dishonest actions on bidders’ trust in information cues from the lending platform.

Suggested Citation

  • Dongyu Chen & Xiaolin Li & Fujun Lai, 2023. "Shill bidding in lenders’ eyes? A cross-country study on the influence of large bids in online P2P lending," Electronic Commerce Research, Springer, vol. 23(2), pages 1089-1114, June.
    • Handle: RePEc:spr:elcore:v:23:y:2023:i:2:d:10.1007_s10660-021-09503-x
    DOI: 10.1007/s10660-021-09503-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10660-021-09503-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10660-021-09503-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Herzenstein, Michal & Dholakia, Utpal M. & Andrews, Rick L., 2011. "Strategic Herding Behavior in Peer-to-Peer Loan Auctions," Journal of Interactive Marketing, Elsevier, vol. 25(1), pages 27-36.
    2. Dongyu Chen & Xiaolin Li & Fujun Lai, 2017. "Gender discrimination in online peer-to-peer credit lending: evidence from a lending platform in China," Electronic Commerce Research, Springer, vol. 17(4), pages 553-583, December.
    3. Veronica Rappoport & Enrichetta Ravina & Daniel Paravisini, 2010. "Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios," 2010 Meeting Papers 664, Society for Economic Dynamics.
    4. Nikitkov, Alexey & Bay, Darlene, 2015. "Shill bidding: Empirical evidence of its effectiveness and likelihood of detection in online auction systems," International Journal of Accounting Information Systems, Elsevier, vol. 16(C), pages 42-54.
    5. Gordon Burtch & Anindya Ghose & Sunil Wattal, 2013. "An Empirical Examination of the Antecedents and Consequences of Contribution Patterns in Crowd-Funded Markets," Information Systems Research, INFORMS, vol. 24(3), pages 499-519, September.
    6. Khwaja, Asim Ijaz & Mian, Atif, 2005. "Unchecked intermediaries: Price manipulation in an emerging stock market," Journal of Financial Economics, Elsevier, vol. 78(1), pages 203-241, October.
    7. Cuiqing Jiang & Zhao Wang & Ruiya Wang & Yong Ding, 2018. "Loan default prediction by combining soft information extracted from descriptive text in online peer-to-peer lending," Annals of Operations Research, Springer, vol. 266(1), pages 511-529, July.
    8. Robert A. Jarrow, 2008. "Market Manipulation, Bubbles, Corners, and Short Squeezes," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 6, pages 105-130, World Scientific Publishing Co. Pte. Ltd..
    9. Shai Bernstein & Arthur Korteweg & Kevin Laws, 2017. "Attracting Early-Stage Investors: Evidence from a Randomized Field Experiment," Journal of Finance, American Finance Association, vol. 72(2), pages 509-538, April.
    10. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    11. Uri Simonsohn & Dan Ariely, 2008. "When Rational Sellers Face Nonrational Buyers: Evidence from Herding on eBay," Management Science, INFORMS, vol. 54(9), pages 1624-1637, September.
    12. Alex Edmans, 2009. "Blockholder Trading, Market Efficiency, and Managerial Myopia," Journal of Finance, American Finance Association, vol. 64(6), pages 2481-2513, December.
    13. Ledgerwood Shaun D. & Carpenter Paul R., 2012. "A Framework for the Analysis of Market Manipulation," Review of Law & Economics, De Gruyter, vol. 8(1), pages 253-295, September.
    14. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    15. Yun Xu & Chuan Luo & Dongyu Chen & Haichao Zheng, 2015. "What Influences the Market Outcome of Online P2P Lending Marketplace?: A Cross-Country Analysis," Journal of Global Information Management (JGIM), IGI Global, vol. 23(3), pages 23-40, July.
    16. Hanson, Robin & Oprea, Ryan & Porter, David, 2006. "Information aggregation and manipulation in an experimental market," Journal of Economic Behavior & Organization, Elsevier, vol. 60(4), pages 449-459, August.
    17. Daniel Paravisini & Veronica Rappoport & Enrichetta Ravina, 2017. "Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios," Management Science, INFORMS, vol. 63(2), pages 279-297, February.
    18. Nataliya Barasinska, 2010. "Would Lehman Sisters Have Done It Differently?: An Empirical Analysis of Gender Differences in Investment Behavior," Working Paper / FINESS 6.2, DIW Berlin, German Institute for Economic Research.
    19. Gallagher, David R. & Gardner, Peter & Swan, Peter L., 2009. "Portfolio pumping: An examination of investment manager quarter-end trading and impact on performance," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 1-27, January.
    20. 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.
    21. Carolyn P. Egri & David A. Ralston, 2004. "Generation Cohorts and Personal Values: A Comparison of China and the United States," Organization Science, INFORMS, vol. 15(2), pages 210-220, April.
    22. Tālis J. Putniņš, 2012. "Market Manipulation: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 952-967, December.
    23. Juanjuan Zhang & Peng Liu, 2012. "Rational Herding in Microloan Markets," Management Science, INFORMS, vol. 58(5), pages 892-912, May.
    24. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Belleflamme, Paul & Omrani, Nessrine & Peitz, Martin, 2015. "The economics of crowdfunding platforms," Information Economics and Policy, Elsevier, vol. 33(C), pages 11-28.
    2. Yingxiu Zhao & Wei Zhang & Xiangyu Kong, 2019. "Dynamic Cross-Correlations between Participants’ Attentions to P2P Lending and Offline Loan in the Private Lending Market," Complexity, Hindawi, vol. 2019, pages 1-8, December.
    3. Samuel Ribeiro-Navarrete & Juan Piñeiro-Chousa & M. Ángeles López-Cabarcos & Daniel Palacios-Marqués, 2022. "Crowdlending: mapping the core literature and research frontiers," Review of Managerial Science, Springer, vol. 16(8), pages 2381-2411, November.
    4. Carla Martínez-Climent & Ana Zorio-Grima & Domingo Ribeiro-Soriano, 2018. "Financial return crowdfunding: literature review and bibliometric analysis," International Entrepreneurship and Management Journal, Springer, vol. 14(3), pages 527-553, September.
    5. Lu, Haitian & Wang, Bo & Wang, Haizhi & Zhao, Tianyu, 2020. "Does social capital matter for peer-to-peer-lending? Empirical evidence," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    6. Maggie Rong Hu & Xiaoyang Li & Yang Shi & Xiaoquan (Michael) Zhang, 2023. "Numerological Heuristics and Credit Risk in Peer-to-Peer Lending," Information Systems Research, INFORMS, vol. 34(4), pages 1744-1760, December.
    7. Wei Zhang & Yingxiu Zhao & Pengfei Wang & Dehua Shen, 2020. "Investor Sentiment and the Return Rate of P2P Lending Platform," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(1), pages 97-113, March.
    8. Dongyu Chen & Xiaolin Li & Fujun Lai, 2017. "Gender discrimination in online peer-to-peer credit lending: evidence from a lending platform in China," Electronic Commerce Research, Springer, vol. 17(4), pages 553-583, December.
    9. Chen, Xiao & Huang, Bihong & Shaban, Mohamed, 2022. "Naïve or sophisticated? Information disclosure and investment decisions in peer to peer lending," Journal of Corporate Finance, Elsevier, vol. 77(C).
    10. Kai Lu & Zaiyan Wei & Tat Y. Chan, 2022. "Information Asymmetry Among Investors and Strategic Bidding in Peer-to-Peer Lending," Information Systems Research, INFORMS, vol. 33(3), pages 824-845, September.
    11. Andreas Hoegen & Dennis M. Steininger & Daniel Veit, 2018. "How do investors decide? An interdisciplinary review of decision-making in crowdfunding," Electronic Markets, Springer;IIM University of St. Gallen, vol. 28(3), pages 339-365, August.
    12. Dongwoo Kim, 2023. "Can investors’ collective decision-making evolve? Evidence from peer-to-peer lending markets," Electronic Commerce Research, Springer, vol. 23(2), pages 1323-1358, June.
    13. Yuho Chung & Yiwei Li & Jianmin Jia, 2021. "Exploring embeddedness, centrality, and social influence on backer behavior: the role of backer networks in crowdfunding," Journal of the Academy of Marketing Science, Springer, vol. 49(5), pages 925-946, September.
    14. Chan, C.S. Richard & Parhankangas, Annaleena & Sahaym, Arvin & Oo, Pyayt, 2020. "Bellwether and the herd? Unpacking the u-shaped relationship between prior funding and subsequent contributions in reward-based crowdfunding," Journal of Business Venturing, Elsevier, vol. 35(2).
    15. Peng Wang & Haichao Zheng & Dongyu Chen & Liangchao Ding, 2015. "Exploring the critical factors influencing online lending intentions," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 1(1), pages 1-11, December.
    16. Sunghun Chung & Keongtae Kim & Chul Ho Lee & Wonseok Oh, 2023. "Interdependence between online peer‐to‐peer lending and cryptocurrency markets and its effects on financial inclusion," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1939-1957, June.
    17. Teply, Petr & Polena, Michal, 2020. "Best classification algorithms in peer-to-peer lending," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    18. Matthew J. Hashim & Karthik N. Kannan & Sandra Maximiano, 2017. "Information Feedback, Targeting, and Coordination: An Experimental Study," Information Systems Research, INFORMS, vol. 28(2), pages 289-308, June.
    19. Bryan Bollinger & Song Yao, 2018. "Risk transfer versus cost reduction on two-sided microfinance platforms," Quantitative Marketing and Economics (QME), Springer, vol. 16(3), pages 251-287, September.
    20. Kgoroeadira, Reabetswe & Burke, Andrew & Di Pietro, Francesca & van Stel, André, 2023. "Determinants of firms’ default on unsecured loans in the P2P crowdfunding market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:elcore:v:23:y:2023:i:2:d:10.1007_s10660-021-09503-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.