The Signaling Value of Online Social Networks: Lessons from Peer-to-Peer Lending
NBER Working Paper No. 19820
We examine whether social networks facilitate online markets using data from a leading peer-to-peer lending website. Borrowers with social ties are consistently more likely to have their loans funded and receive lower interest rates. However, most social loans do not perform better ex post, except for loans with endorsements from friends contributing to the loan or loans with group characteristics most likely to provide screening and monitoring. We also find evidence of gaming on borrower participation in social networks. Overall, our findings suggest that return-maximizing lenders should be careful in interpreting social ties within the risky pool of social borrowers.
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Document Object Identifier (DOI): 10.3386/w19820
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