Friendships in Online Peer-to-Peer Lending: Pipes, Prisms, and Relational Herding

Liu, De; Brass, Daniel; Lu, Yong; Chen, Dongyu

doi:10.2139/ssrn.2251155

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Friendships in Online Peer-to-Peer Lending: Pipes, Prisms, and Relational Herding

MIS Quarterly, Vol. 39, No.3, pp.729-742

36 Pages Posted: 15 Apr 2013 Last revised: 26 Aug 2015

See all articles by De Liu

Daniel Brass

University of Kentucky - Gatton College of Business and Economics

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.

Keywords: friendship relationships, prism effect, peer-to-peer lending, herding

JEL Classification: E44, D8, D7, G14, M31

Suggested Citation: Suggested Citation

Liu, De and Brass, Daniel and Lu, Yong and Chen, Dongyu, Friendships in Online Peer-to-Peer Lending: Pipes, Prisms, and Relational Herding (2015). MIS Quarterly, Vol. 39, No.3, pp.729-742, Available at SSRN: https://ssrn.com/abstract=2251155 or http://dx.doi.org/10.2139/ssrn.2251155