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Friendships in Online Peer-To-Peer Lending: Pipes, Prisms, and Relational Herding1

De Liu¹; Daniel J. Brass²; Yong Lu^3,4; Dongyu Chen⁵

¹ Department of Information and Decision Sciences, Carlson School of Management, University of Minnesota, Minneapolis, MN 55455 U.S.A. · ² LINKS Center for Social Network Analysis, Gatton College of Business and Economics, University of Kentucky, Lexington, KY 40506 U.S.A. · ³ Institute of Internet Finance & Institute of Chinese Financial Studies, Southwestern University of Finance and Economics, China · ⁴ Information Science & Technology, The Pennsylvania State University, 76 University Drive, Hazelton, PA 18202 U.S.A. · ⁵ Dongwu Business School, Soochow University, No. 50, Donghuan Road, Suzhou City, Jiangsu Province, People’s Republic of China

This paper investigates how friendship relationships act as pipes, prisms, and herding signals in a large online, peer-to-peer (P2P) lending site. By analyzing decisions of lenders, we find that friends of the borrower, especially close offline friends, act as financial pipes by lending money to the borrower. On the other hand, the prism effect of friends’ endorsements via bidding on a loan negatively affects subsequent bids by third parties. However, when offline friends of a potential lender, especially close friends, place a bid, a relational herding effect occurs as potential lenders are likely to follow their offline friends with a bid.

DOI

10.25300/misq/2015/39.3.11

Volume

39 (3)

Pages

729-742

Language

en

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BibTeX

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