Abstract

http://ssrn.com/abstract=1343275
 
 

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Trust and Credit


Jefferson Duarte


Rice University

Stephan Siegel


University of Washington - Michael G. Foster School of Business

Lance A. Young


University of Washington - Department of Finance and Business Economics

June 2, 2010

AFA 2010 Atlanta Meetings Paper

Abstract:     
This study examines empirically whether individuals consider their perceptions of potential counterparties' trustworthiness when deciding to transact in an environment with extensive contract enforcement mechanisms. This is a non-trivial empirical question because, as observed by Carlin, Dorobantu, and Viswanathan (2009), in the presence of adequate contracts and enforcement mechanisms, trust need not affect market outcomes at all. We find that borrowers who are perceived as less trustworthy are economically and significantly less likely to have their loan requests filled. This result provides support to a growing literature in finance that suggests that trust could play a causal role in stock market participation, the lack of diversification in investors' asset allocation, as well as the pattern of cross-border investments.

Number of Pages in PDF File: 60

Keywords: Trust, information asymmetry, consumer credit, peer-to-peer lending

JEL Classification: D81, D83, G21

working papers series


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Date posted: February 16, 2009 ; Last revised: August 4, 2010

Suggested Citation

Duarte, Jefferson and Siegel, Stephan and Young, Lance A., Trust and Credit (June 2, 2010). AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1343275 or http://dx.doi.org/10.2139/ssrn.1343275

Contact Information

Jefferson Duarte
Rice University ( email )
6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
713.3486137 (Phone)
Stephan Siegel (Contact Author)
University of Washington - Michael G. Foster School of Business ( email )
Box 353200
Seattle, WA 98195-3200
United States
HOME PAGE: http://faculty.washington.edu/ss1110/
Lance A. Young
University of Washington - Department of Finance and Business Economics ( email )
Box 353200
Seattle, WA 98195
United States
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