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Abstract
Online peer-to-peer (P2P) lending, one of the most successful technology-enabled initiatives in the fintech revolution, has drastically changed the way individual investors and borrowers meet and transact. While prior research has found herding among investors at the listing level, such social behavior has been underexplored at a macro, platform level. In this study, we attempt to fill this gap by examining whether subsequent investors follow their predecessors’ actions when choosing which platform to invest, and if so, how various platform attributes and regulations moderate herding behavior. We collected a novel data set from leading platforms in a large P2P lending market. Our baseline analysis reveals that herding exists at the platform level. Using a multilevel model, we further identify several interesting moderators: the investor’s herding behavior is accentuated by platforms’ market share and the cumulative amount funded, but attenuated by their time in operation. Finally, we find that government regulatory events dampen the magnitude of the herding effect, suggesting that more information disclosure and stricter operation standards reduce the value of observational learning. The results from our analysis provide implications for P2P lending investors, platform designers, and policymakers.
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Notes
1. Up to August 2017, roughly 71 percent of the sample platforms are still in good operational status.
2. Ideally, we could have calculated variables in the spirit of the Herfindahl–Hirschman index (HHI). However, we only have the data on the fraction of total debt to be collected (paid) by the top 10 lenders (borrowers). Inv. Concentration and Bor. Concentration serve a similar purpose and are the best constructs given the data.
3. In addition, all the above results remained qualitatively the same after we added Cum. Investors Squared, which controls for a potential nonlinear effect (see Appendix Table A1).
4. The five principles include: (1) financial innovation must serve the real economy; (2) financial innovation should adhere to the general requirements of macro control and financial stability; (3) the legitimate rights and interests of consumers must be safeguarded; (4) a fair competitive market must be maintained; and (5) the relationship between government regulation and rules imposed by the platform must be balanced.
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Notes on contributors
Yang Jiang
Yang Jiang ([email protected]) is a Ph.D. candidate in management science and engineering at the School of Management, Harbin Institute of Technology, China. Her research interests include peer-to-peer lending, crowdfunding, and media coverage of financial markets.
Yi-Chun (Chad) Ho
Yi-chun (Chad) Ho ([email protected]) is an assistant professor of information systems at the School of Business, George Washington University. He received his Ph.D. from the Foster School of Business, University of Washington. His research explores contemporary phenomena surrounding IT-enabled platforms in a variety of contexts, including online product reviews, mobile analytics, peer-to-peer lending, and social media. His work has appeared in premier journals such as Information Systems Research.
Xiangbin Yan
Xiangbin Yan ([email protected]; corresponding author) is a professor of management science and Engineering at the School of Management at Harbin Institute of Technology, China. He received a Ph.D. from the Department of Management Science and Engineering at Harbin Institute of Technology. His research interests include electronic commerce, social media analytics, social network analysis, and business intelligence. His work has appeared in Journal of Informetrics, Scientometrics, Computers in Human Behavior, International Journal of Medical Informatics.
Yong Tan
Yong Tan ([email protected]) is the Neal and Jan Dempsey Professor of Information Systems at the Michael G. Foster School of Business, University of Washington, Chang Jiang Scholar Visiting Chair Professor at Tsinghua University, China, and a Distinguished Fellow of the INFORMS Information Systems Society. His research interests include social media and networks, mobile and electronic commerce, big data analytics, and economics of information systems. He has published in Information Systems Research, Journal of Management Information Systems, Management Science, MIS Quarterly, and Operations Research, among others. He is a senior editor of Information Systems Research and a member of the Board of Editors of the Journal of Management Information Systems.