Lending Behavior and Community Structure in an Online Peer-to-Peer Economic Network (original) (raw)
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Journal of Management Information Systems (JMIS) , 2023
This paper analyzes the herding behavior that characterizes lenders’ lending decisions on a microloan platform and explains how rational herding behavior can resolve the information-asymmetry problem, which is a well-known reason for the failure of online microloan platforms. Using a set of panel data on individual lending decisions acquired from Paipaidai.com (PPDai), an online microloan platform, we examine the influence of the lending decisions of prominent, experienced lenders on novice lenders to identify rational herding behavior. Our empirical analysis demonstrates that rational herding behavior can in fact efficiently reduce lender loss from borrower defaults caused by limited information. Although it is typically assumed that herding behavior is irrational, we find that it can be rational in this context and can thus shed light on why PPDai has succeeded while most other microloan platforms have failed. Accordingly, we make three key contributions: (1) we use heterogeneous herding effects to empirically determine whether lenders’ herding behavior on PPDai is rational based on observational learning; (2) we investigate the moderating effect of borrower credit and novice-lender experience on herding, and we leverage this heterogeneity in lender experience to better explain loan results; and (3) because PPDai publicly provides potential lenders with a transparent credit score—in contrast to platforms like Prosper.com, which leverage hidden proprietary credit information from Experian—we further analyze the credit composition of prominent lenders to better understand the crucial determinants of rational herding. In fact, our follow-up survival simulations indicate that without rational herding, the total number of successful PPDai loans would have decreased by around 46% during the study period—a finding that further underlines the crucial influence of rational herding and the unique contextual factors of PPDai that have fostered it.
Journal of Information Technology, 2017
Internet-based information systems (IS) have enabled various forms of collective intelligence, action, and resources (e.g. open source software, innovation marketplaces, crowdsourcing, and crowdfunding). Within the domain of crowdfunding, Internet-enabled Peer-to-Peer Lending Systems (IP2PLS) have emerged as a disruptive technology, with implications for the financial services sector, business capitalization strategies, and personal and community development. IS research investigating user behavior in IP2PLS has revealed the saliency of social identity and personal transparency (as expressed through information sharing) in such systems. Prior research has largely focused on a small number of IP2PLS providers, thus this study examines a very large but under-researched platform. The study tests a theoretical model based on Social Identity Theory and prior IP2PLS studies, through an analysis of 116,667 loan records, and a subsequent analysis of 1000 manually coded records, to investiga...