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

De Liu

University of Minnesota - Twin Cities - Carlson School of Management

Daniel Brass

University of Kentucky - Gatton College of Business and Economics

Yong Lu

Pennsylvania State University

Dongyu Chen

Soochow University

Date Written: 2015

Abstract

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

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

De Liu (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Daniel Brass

University of Kentucky - Gatton College of Business and Economics ( email )

Dept. of Management
Lexington, KY 40506
United States
859-257-4260 (Phone)
859-257-3577 (Fax)

Yong Lu

Pennsylvania State University ( email )

201 Old Main
University Park, PA 16802
United States

Dongyu Chen

Soochow University ( email )

Donghuan Road 50#, Suzhou, China
Suzhou, Jiangsu 215000
China

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