Carrot or Stick? Evidence from a Pair of Natural Field Experiments Testing Lender Information Sharing Hypotheses

54 Pages Posted: 6 Jun 2018 Last revised: 15 Jun 2018

See all articles by Li Liao

Li Liao

Tsinghua University - PBC School of Finance

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Ni Wang

The Quant Group

Zhengwei Wang

Tsinghua University - PBC School of Finance

Jun Yang

Indiana University - Kelley School of Business - Department of Finance

Date Written: June 15, 2018

Abstract

We conducted a pair of natural field experiments on an online lending platform in China to examine the causal effect of information sharing among lenders on borrower adverse selection and moral hazard problems. Two features highlight our experiments: 1) both experiments were conducted after loan approvals; 2) we altered the timing of borrowers’ awareness of credit reporting. We find information sharing affects both take-up and default decisions significantly—while information sharing substantially mitigated moral hazard, reducing the default likelihood of new borrowers by 5.66%, adverse selection slightly deteriorated, likely driven by new borrowers’ eagerness to establish a credit history.

Keywords: Adverse Selection, Moral Hazard, Fintech, P2P, Lender Information Sharing

JEL Classification: G10, G21, G23

Suggested Citation

Liao, Li and Martin, Xiumin and Wang, Ni and Wang, Zhengwei and Yang, Jun, Carrot or Stick? Evidence from a Pair of Natural Field Experiments Testing Lender Information Sharing Hypotheses (June 15, 2018). Kelley School of Business Research Paper No. 18-48. Available at SSRN: https://ssrn.com/abstract=3182671 or http://dx.doi.org/10.2139/ssrn.3182671

Li Liao

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Xiumin Martin (Contact Author)

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Ni Wang

The Quant Group ( email )

63 Wireless Rd, Athenee Tower
Floor 18, Unit 1802
Bangkok, 10330
Thailand

Zhengwei Wang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China

Jun Yang

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3395 (Phone)
812-855-5875 (Fax)

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