Voluntary disclosures and peer-to-peer lending decisions: Evidence from\xa0the repeated game

Yan Li,Cungang Li,Yijun Gao

doi:10.1186/s11782-020-00075-5

Yan Li, Cungang Li + Show 1 more

Open Access

https://doi.org/10.1186/s11782-020-00075-5

Copy DOI

Abstract

This study investigates the effect of voluntary disclosures on lending decisions in the repeated game. Using a unique dataset from a peer-to-peer lending platform, “ppdai” (paipaidai), we document that voluntary disclosures in the repeated game play a stronger role in promoting funding success than those in the one-shot game. We argue that voluntary disclosures improve the bidding activity in the repeated game through which they increase funding success. In addition, the greater impact of voluntary disclosures on funding success in the repeated game only holds for loans without a personal guarantee attribution. Our extended results suggest that the subjective voluntary disclosures in the repeated game have greater information content only when borrowers have a successful borrowing experience. We also point out that voluntary disclosures in the repeated game are associated with a lower probability of default. Our results are robust to the Heckman two-step estimation that addresses the self-selection effect and a specification designed to rule out the alternative explanation from reputation in the repeated game. Our study provides new insights into the real effects of costless, voluntary and unverifiable disclosures on lending decisions.

Highlights

The traditional lending style of person-to-person is popular again with the rapid development of the Internet nowadays
We investigate the relationship between voluntary disclosures and lending decisions within the context of the repeated cheap-talk game using a unique dataset of unsecured personal loan listings from the online lending platform “ppdai.” The process of lending is a game between the borrower and lender
For borrowers who have a history of getting a loan successfully, this study finds voluntary disclosures are positively associated with funding success

Summary

Introduction

The traditional lending style of person-to-person is popular again with the rapid development of the Internet nowadays. The coefficients of Lsuccess×Score are still negative and significant at the 1% level and the magnitudes have little effects even while controlling for the other variables of the loan’s and borrower’s characteristics This suggests voluntary disclosures play a stronger role in promoting funding success when borrowers have a successful borrowing experience on the platform. We examine whether the bidding activity and the personal guarantee attribution are possible underlying economic mechanisms through which voluntary disclosures in the repeated game of P2P lending play a role in promoting funding success. The evidence presented in this subsection suggests voluntary disclosures increase the probability of funding success in the repeated game only when borrowers post the loan listings without a personal guarantee.

Objective

Findings

Conclusion