Carrot or stick ? Evidence from a pair of natural field experiments testing lender information sharing hypotheses

We examine the effect of lender credit reporting on borrowers’ loan take-up and default decision. In a pair of natural field experiments at an online lending platform after loans being approved by the lender, we manipulate the timing of a text message sent to randomly selected borrowers, informing lender information sharing: the message was sent out before loan take-up in the first experiment but after in the second. We find awareness of lender information sharing improved loan take-up rate in the first experiment and repayment likelihood in both experiments, among new borrowers but not repeat borrowers. In addition, the default rate reduction among new borrowers is similar across the two experiments. Our findings suggest that lender credit reporting (1) offers a means for new borrowers to establish “reputation”, (2) does not affect borrowers’ adverse selection significantly, and (3) plays a disciplining role in improving borrower repayment effort.

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