Voluntary Information Disclosure And Accuracy Of Lender's Perception Of Borrower's Credit Worthiness On P2P Lending Platforms

Information asymmetry between lenders and borrowers leads to adverse selection and moral hazard,disclosure of information is a direct way to reduce those problem.Borrowers have an option of disclosing personal information on peer-to-peer lending platforms,analysis of such behaviors will help to discover the credit value thus contribute to the risk assessment.Based on borrower's perspective this paper explores if voluntary disclosure is related to borrower's credit value.Lending platforms and investors will find this paper helpful in making decisions from hidden information.Based on actual data from a leading platform Renrendai,this study examines the effects of voluntary disclosure on the perception of lenders and their propensity to provide credit.The result shows that voluntary disclosure will improve the financial performance,no matter the information is verified or non-verified.However,verified information disclosure is found to have a positive effect on borrower's repayment performance while non-verified information is found to have a negative effect.Non-verified voluntary disclosure does not deliver the correct signal,and investors have deviated from the identification bias of this part of information.This paper continues to identify the reasons behind the information identification bias.Firstly,borrowers who disclosed more non-verified information have a lower credit rating,those information does not represent the borrower's real quality and the information advantage still exists.Secondly,borrowers who disclosed more non-verified information are more likely to set a higher rate,which will mislead investors to expect higher benefit.Thirdly,according to the privacy calculus theory,the non-verified information disclosure will reduce the default cost and increase the financial performance,thus encourage low quality borrowers to disclose more non-verified information.Fourthly,according to the confirmation bias theory,investors on the platform generally pursue higher profits,they intend to believe information which makes the loan profitable,confirmation bias occurs.Investor's information identification have bias,this bias can be released through crediting rating signals and social signals.For those borrowers who already have high credit rating or strong social ties,non-verified information have a less effect on investor' behaviors.The results provide borrowers better accesses to financial services at lower costs while balancing financial privacy,and investors should also value the risk to raise the return on investments.The platforms should make improvements on the credit evaluation system,the information disclosure process,the information review mechanism and the information docking system.The results contribute to reduce financial risks,improve financial efficiency and promote the healthy development of the online lending industry.