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How friendship networks work in online P2P lending markets

Siming Li (Key Lab. for Financial Intelligence and Financial Engineering, Southwestern University of Finance and Economics, Chengdu, China)
Zhangxi Lin (Rawls College of Business Administration, Texas Tech University, Lubbock, Texas, USA)
Jiaxian Qiu (The College of Logistics, Chengdu University of Information Technology, Chengdu, China)
Roozmehr Safi (Rawls College of Business Administration, Texas Tech University, Lubbock, Texas, United States of America)
Zhongyi Xiao (School of Economics, Southwest University of Political Science and Law, Chongqing, China)

Nankai Business Review International

ISSN: 2040-8749

Article publication date: 2 March 2015

Abstract

Purpose

The purpose of this paper is to study the effects of multidimensional friendship networks on economic outcomes in the domain of online people-to-people (P2P) lending markets.

Design/methodology/approach

The empirical analysis is based on the data set of transactions and friendship networks from PPDai.com market, the most prominent P2P lending market in China. A friendship hierarchy is proposed in this paper to conceptualize friendship network types. Furthermore, methodologies of t-test, logistic regression and ordinary least squares regression are implemented to measure the impact of multidimensional friendship network variables on the probability of successful funding, as well as the interest rates on funded loans.

Findings

The study demonstrates significant effects of structural, relational and cognitive friendship networks using PPDai.com data. The results indicate that structural friendship network measured in terms of the number of friendship ties is a significant factor of funding performance. Additionally, borrowers, who are involved in higher-quality friendship networks, are more likely to be funded and pay lower interest rates on funded loans. Also, the deeper the level of the relationship is in the friendship hierarchy, the more significant will be the effect of friendship on the final economic results. Furthermore, quality is more important than quantity in determining funding performance.

Originality/value

This paper is the first to study the effects of multidimensional friendship networks on economic outcome variables in the domain of online P2P lending, thus broadening the theory of multidimensional social capital, which can deepen our understanding about how social networks work and have significant implications practically and theoretically.

Keywords

Acknowledgements

The authors would like to thank the editor and reviewers for their efforts in helping them develop this paper and for an exemplary review process as a whole. Also, they are grateful Dr Binjie Luo for the comments and technical helps, which are valuable to this paper. This research has been sponsored by the Major Program of the National Natural Science Foundation of China under Grant No. 91218301 and the Fundamental Research Funds for the Central Universities under Grant No. JBK120505.

Citation

Li, S., Lin, Z., Qiu, J., Safi, R. and Xiao, Z. (2015), "How friendship networks work in online P2P lending markets", Nankai Business Review International, Vol. 6 No. 1, pp. 42-67. https://doi.org/10.1108/NBRI-01-2014-0010

Publisher

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Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited