Peer effect and funding success: Analyzing friendship networks in online credit markets

Hongming Gao, Hui Zhu and Haiying Ma

Finance Research Letters, 2024, vol. 66, issue C

Abstract: The challenge of limited information in online credit markets is well-recognized. This study examines the peer effect in microloan transactions using data from a leading Chinese lending platform. Results show that the likelihood of a borrower's funding success is higher when a higher proportion of online friends succeed. Both borrowers’ network centrality and digital footprints strengthen this effect, suggesting two mechanisms: social learning and informational complementarity. The peer effect is stronger among borrowers with larger networks, more loan experience, better repayment, and older age. The research provides new insights to mitigate information asymmetry in financial markets and guide investment decisions.

Keywords: Microloans; Credit markets; Peer effect; Funding success; Social network; Digital footprints (search for similar items in EconPapers)
JEL-codes: G20 G21 G29 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:66:y:2024:i:c:s1544612324006810

DOI: 10.1016/j.frl.2024.105651

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