Mechanism (biology)

Probability of default

Philosophy

Actuarial science

Computer security

China

Economics

Computer science

Distributed computing

Empirical evidence

Business

Peer-to-peer

Reputation

Political science

Monetary economics

Epistemology

Sociology

Credit risk

Key (lock)

Social science

Finance research letters

Using more than 178,000 borrowing listings in a Chinese online peer-to-peer (P2P) platform, we examine whether there is an effective reputation mechanism in P2P lending. The empirical results indicate that borrowers with better historical performance can obtain loans at a higher probability and lower cost. This indicates that lenders take borrowers' reputation as a key signal in their lending decisions. Moreover, a good reputation can reduce borrowers' default probability. We conclude that in P2P lending, there is an effective reputation mechanism that can discipline borrowers' behavior.

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