A Study Of The Key Issues In Social Network Based Online Investing And Financing Services

China’s economy has been growing rapidly for more than three decades since its economic reformation which mainly thanks to the development of export and investment. However, this approach comes along with overconsumption of human and natural resources and is no longer sustainable. Currently, it is consented by the government and the industry that collaborative innovation and economic growth pattern transformation are the key factors to overcome the bottleneck of China’s economic development. Aiming at increasing investing and financing channel, this study focuses on the merging problem of financial innovation and technological innovation in the information age, proposes an framework and relevant mechanisms to realize an innovative online financial service platform based on social network, investigates several key issues (asymmetric information problem between investor and entrepreneur, improving the financing project quality and filtering the poor quality projects, irrational behavior and its impact on market efficiency, risk management and market regulation) relating to that platform. Firstly, we build the theoretical framework of the research question on the basis of IT application and civil capital involvement. The underpinning theories come from three research domains:social network, innovation, and finance. The effect of social network in eliminating information asymmetry has inspired the research on its potential application in financial innovation. The social capital, embedded in social networks, including social relationships knowledge and information, and monetary capitals, can be used to stimulate innovation, and therefore deserves more attention. The emerging trends in open innovation and collaborative innovation have been applied into many fields, for example, crowdsourcing and crowd funding. The applicability of innovation theory to this research roots in the idea of open innovation which tells us that the most effective way of innovation is to exploit "crowd". The nexus between technology innovation and financial innovation implies the great value and importance to this research. Financing and investing theories, as one of core elements in the theoretic framework, plays a key role in explaining the behavior patterns in financing and investing activities in innovated financing service platforms.More specifically, the contributions of this research can be summarized as follows:1) we propose a model based on assumptions regarding information preference and retrieving cost to explain the formation of herding behavior in online financial service.(It has been published in a SSCI indexed journal, Information Systems and e-Business Management). We depart from previous models in the assumptions about information cost and personal preference for the different information source. Based on that, our model closely connects to empirical tests. For more details, please see Chapter4and section4.2.1.2) We reveal that the role of social network in ameliorating information asymmetry problem relies on the credit system of the outside market. We conduct an empirical study with real transactional data coming from both China and US P2P lending markets to investigate the information asymmetry problem for the first time. And the results indicate that social network plays different roles in different markets. More detail, we find that in China PPdai market, social network imposes a more significant role than it in Prosper.com, a US P2P lending market. Please check Chapter5and section5.1for more details.3) We firstly observe information overloading problem in online P2P lending markets. Although the application of information system reduces the cost of information retrieving and exchanging, it brings us with information overloading. Facing with many seemingly relevant information to make a decision, how to process them to reduce information asymmetry is a problem for every decision maker. For the lack of personal experience and decision aid tools, investors may adopt risk irrelevant information to make an investment ignoring risk signals. Please check Chapter5and conclusion5-1and5-4for more details.4) A framework of an innovative online financial service platform is proposed. To keep its normal function,8mechanisms are also investigated from the perspective of the project life cycle. This platform is based upon the idea of open innovation and implemented by IT and statistics methods, incorporates social network services, institutional and P2P investing models. On one hand, we want to reduce the transaction cost, level up the market efficiency, fully utilizes civil capital to join the financing activities, through IT technology and social network service. On the other hand, we hope that the financing model integrating both individual and institutional investors can provide individual investor with more guidance. Please check Chapter6for details.For a long time, government administrator has hesitated to grant legal status to civil financial activities. Such an attitude impedes us to realize the rationality behind its existence, which indirectly prevents us from exploring and studying it. From the practical perspective, due to lack of an objective attitude towards civil financing and real life data vacancy, scholars do not have an opportunity to research into it. Research vacancy will result in lacking comprehensive and objective understanding about civil financing activities. Concerns and anxiety, regarding it come from uncertainty. Based on the development of information technology and online social network services, online financial service provides us with a real transaction based angle to investigate civil lending activities. Analyzing data from online P2P lending market enables researchers to access potential problems after civil finance is legalized. Based on a comparative study between online P2P markets in China and US, our findings identify social network’s importance to civil finance. And those findings include:social network can significantly ameliorate asymmetric information problems in online lending markets and its impact on information asymmetry varies in accordance with market external environment. The higher the vacancy of market external reputation system, the more lending activity relies on a social network. It is also confirmed that delicately designed market mechanisms combining the power of the market per se can guide and regulate civil finance well. Legalizing civil finance would not bring us with chaos. When the market-oriented economy reaches a certain stage and becomes more mature, the leading role and direct intervention of government in the civil investing and financing market may hinder the development of the market. Therefore, pay more attention should be paid to the role of civil finance in economic development in order to resolve the problems.This study is sponsored by the Key Project (11AZD077) of National Social Science Foundation of China and the grants from the Department of Science and Technology of Sichuan province in2010,2011, and2012.