Understanding Lenders' Investment Behavior in Online Peer-to-Peer Lending: A Construal Level Theory Perspective

40 Pages Posted: 14 Apr 2020 Last revised: 4 Aug 2020

See all articles by Yi Wu

Yi Wu

Tianjin University - College of Management and Economics

Weiling Ke

Clarkson University - School of Business

Yuelei Li

Tianjin University - College of Management and Economics

Zhijie Lin

Tsinghua University - School of Economics and Management

Yong Tan

University of Washington - Michael G. Foster School of Business

Date Written: August 4, 2020

Abstract

Online peer-to-peer lending (i.e., P2P lending) has grown rapidly in recent years and is a new source of fixed income for investors. However, we have a rather limited understanding of factors affecting lenders’ decision making in this context, which is characterized as high risk and prosocial in nature. In our research, drawing upon incentive theory of motivation and construal level theory (CLT), we theorize how interest rate and psychological distance caused by the borrower’s demographic attributes (i.e., geographic location and educational level) relative to those of the lender jointly affect the bidding value submitted by the lender. Using a rich data set from a popular online P2P lending platform in China, we apply multiple identification strategies and estimation methods to conduct the analysis. We find that interest rate is the driving factor for the lender’s bidding value on a loan listing and that such positive effects are strengthened by the geographic and educational distance between the lender and the borrower. In addition, geographic distance decreases the lender’s bidding value on a loan listing (i.e., home bias effect), whereas educational distance increases the bidding value (i.e., educational distance effect). Theoretical contributions and practical implications are discussed.

Keywords: online P2P lending, construal level theory, interest rate, geographic distance, educational distance, bidding value

Suggested Citation

Wu, Yi and Ke, Weiling and Li, Yuelei and Lin, Zhijie and Tan, Yong, Understanding Lenders' Investment Behavior in Online Peer-to-Peer Lending: A Construal Level Theory Perspective (August 4, 2020). Available at SSRN: https://ssrn.com/abstract=3546445 or http://dx.doi.org/10.2139/ssrn.3546445

Yi Wu

Tianjin University - College of Management and Economics ( email )

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

Weiling Ke

Clarkson University - School of Business ( email )

United States

Yuelei Li

Tianjin University - College of Management and Economics ( email )

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

Zhijie Lin (Contact Author)

Tsinghua University - School of Economics and Management ( email )

Haidian District
Beijing, Beijing 100084
China

Yong Tan

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3226
United States

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