Is there an effective reputation mechanism in peer-to-peer lending? Evidence from China

Employing around 178,000 borrowing listings in a Chinese online peer-to-peer platform, Ding et al. (2019) examine whether there is an effective reputation mechanism in peer-to-peer lending. Their empirical results show that borrowers with better historical performance could obtain loans at a higher probability and lower cost. This means that lenders take borrowers’ reputation as a key signal in their lending decision making. Moreover, a good reputation can lower borrowers’ default probability. In brief, the authors conclude that in peer-to-peer lending, there is an effective reputation mechanism that can discipline borrowers’ behaviour.

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