The effects of lender-borrower communication on P2P lending outcomes

Abstract

Lenders face great uncertainty because of the information asymmetry problem in peerto-peer (P2P) marketplaces. This paper studies an online feature on a P2P platform, which allows lenders to seek information directly from the borrower of a loan, and examines the impact of the direct lender-borrower communication on the funding outcomes and the loan performance. Our analysis results show that the number of lender comments is negatively associated with funding success. This implies that as a listing receives more comments from lenders, the chance of getting funded is lower. On the other hand, the number of borrower responses and response length are positively associated with funding success, although they cannot help reduce the final interest rate. The role of borrower response is even stronger for listings with poor credit grades. The loan performance (i.e., default ratio), however, cannot be predicted based on the amount of lender-borrower communication.