Journal of Management Information Systems

Volume 35 Number 1 2018 pp. 53-85

Cheap Talk? The Impact of Lender-Borrower Communication on Peer-to-Peer Lending Outcomes

Xu, Jennifer J and Chau, Michael


The limited information provided by peer-to-peer (P2P) lending platforms often is not sufficient for lenders to determine if a borrower is trustworthy and able to repay the loan. Using a unique dataset from a P2P lending platform, which allows lenders to seek information directly from borrowers and borrowers to respond to the questions and comments, we examine the impact of lender-borrower communication on funding outcomes and loan performance. Our results show that not only the amount but also the content of such direct communication matters. Specifically, the number of lender comments is negatively associated with funding success, while the number of borrower responses is positively associated with funding success, although only comments help reduce the final interest rate. The role of the communication is even stronger for listings with poor credit grades. Moreover, lenders are influenced by other lenders’ (positive or negative) comments and the quality of the information disclosed in borrower responses can affect funding outcomes. Loan performance (e.g., default ratio), however, cannot be predicted based on the amount of lender borrower communication. This research broadens and deepens our understanding of the roles of information disclosure, social influence, information quality, and trust in economic exchanges in online settings.

Key words and phrases: information quality, lender-borrower communication, online trust, P2P lending, peer-to-peer systems, social influence