Management Review

›› 2019, Vol. 31 ›› Issue (4): 3-18.

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The Information Content of Reputation——Evidence from Peer-to-Peer Lending

Li Yan1, Zhang Yingxin1, Wang Lin2   

  1. 1. Business School, Renmin University of China, Beijing 100872;
    2. Postdoctoral Research of CRSC, Beijing 100033
  • Received:2017-08-09 Online:2019-04-28 Published:2019-04-26

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Abstract:

Reputation can be used as a signal to transmit information and therefore can effectively reduce the information asymmetry. Besides, the information content of reputation is dynamic since the strength of signal varies. Using a sample of peer-to-peer investment data in China for the period from July 2011 to July 2013, we investigate the impact of borrower's reputation on the investment outcome and how the uncertainty of the transaction regulates the relationship. The results show that, borrowers with higher reputation have high probability to get the borrowing funded and in a more active way; further, the degree of uncertainty faced by investors will enhance the interaction of the relationship, for example, a borrower of poor credit in its early stage relies more on its reputation to get a non-guaranteed loan. The results still hold after endogeneity test and other robustness tests. The findings suggest that the information content of reputation is influenced by the environment in which it plays an important role. That is, the more the reputation can reduce the perception of uncertainty, the more it contains the information.

Key words: reputation mechanism, information content, asymmetric information, P2P lending