Impact of culture in peer-to-peer lending

We document that culture and cultural perception both influence financial decisions. We examine the impact of clan culture, an important dimension of Chinese culture, on individual lending behavior. Using data from RenRenDai, a leading peer-to-peer lending platform in China, we find that borrowers from regions with higher clan culture are more likely to get loans funded, attract larger bids from lenders, get loans funded faster, are less likely to default, and repay a larger fraction of their loans. These effects are more pronounced when there is greater information asymmetry, borrowers are older or from rural areas, and the legal environment is weaker. These results are robust to alternative measures of clan culture. Lenders rely less on culture as a signal of creditworthiness for borrowers with observable default history. Our results suggest that clan culture acts as a substitute for formal institutional mechanisms and participants in the peer-to-peer market use information about clan culture as a proxy for economic factors, improving efficiency of financial decisions.