Naïve or sophisticated? Information disclosure and investment decisions in peer to peer lending

Despite the explosive growth of peer-to-peer lending in China, information asymmetry remains a critical issue and is likely to be amplified such an evolving credit market compared traditional market. This paper studies how investors screen nonstandard often unverifiable disclosed voluntarily by borrowers make their investment decisions. Using data from Renrendai, one leading P2P platforms we find that amount can significantly improve funding probability. The impact even more remarkable for with lower rating. However, loan default probability increases disclosure, indicating possibility manipulation borrowers. Further investigation shows puzzle lenders remain attracted listings explained higher profitability offered These findings imply necessity regulation on disclosure