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

Associate Professor of Finance, Kelley School of Business, Indiana University.

Prof. Yang's CV

We conducted a pair of natural field experiments on an online lending platform in China to examine the causal effect of borrowers’ awareness of information sharing among lenders on borrower adverse selection and moral hazard problems. Two features highlight our experiments: 1) both experiments were conducted after loans had been approved by the platform; 2) we altered the timing of borrowers’ awareness of credit reporting. We find borrowers’ awareness of lender information sharing affects both take-up and default decisions significantly—while information sharing substantially mitigated moral hazard, reducing the default likelihood of new borrowers by 5.66%, adverse selection did not improve, likely driven by new borrowers’ eagerness to establish a credit history.?