Peer Effects in the Online Peer-To-Peer Lending Market : Ex-Ante Selection and Ex-Post Learning

This study investigates peer effects in the online peer-to-peer (P2P) lending market using data from a Chinese online lending platform (Renrendai). The empirical results indicate that peers’ greater success rate in attracting loans leads to borrowers’ greater success rate (peer effects of lending), and peers’ greater default rates lead to borrowers’ greater default rates (peer effects of defaulting). It is more pronounced in high-risk cities for peer effects of lending, and more in borrowers; it is difficult to obtain loans because of peer effects of defaulting, indicating ex-ante selection and ex-post learning mechanisms, respectively. There is a promoting effect of peer effects of lending on P2P lending market efficiency and an inhibitory effect on the peer effects of defaulting. Overall, our results suggest that peer effects significantly affect the decision-making of lenders and borrowers in P2P lending markets with serious information asymmetry