Too long to be true in the description? Evidence from a Peer-to-Peer platform in China

Abstract

This paper explores how loan descriptions provided by borrowers influence both the lenders' and the platform's behaviour in granting loans and setting interest rates. The empirical results show that textual length serves as a strong signal to identify the borrowers' quality. Strategic signalling theories cannot explain the borrowers' behaviour in China. We further show that the peer-to-peer platform is able to benefit from taking description length into consideration and that there exists room for investors to benefit from this information.