Does social capital matter for peer-to-peer-lending? Empirical evidence

Abstract

This paper examines the relation between regional social capital and online peer-to-peer loans. The results indicate that borrowers from states with higher levels of social capital are less likely to be rejected during loan application, have a lower probability of default, and experience lower borrowing cost. In addition, loans granted to borrowers in states with higher levels of social capital yield higher rates of return after controlling for the loan defaults and loan prepayment. The effects of social capital on peer-to-peer loans are stronger in regions with more bank competition and for loans with higher risks.