Voluntary disclosures and peer-to-peer lending decisions: Evidence from the repeated game

Abstract

This study investigates the effect of voluntary disclosures on lending decisions in the repeated game. Using a unique dataset from a peer-to-peer lending platform, "ppdai" (paipaidai), we document that voluntary disclosures in the repeated game play a stronger role in promoting funding success than those in the one-shot game. We argue that voluntary disclosures improve the bidding activity in the repeated game through which they increase funding success. In addition, the greater impact of voluntary disclosures on funding success in the repeated game only holds for loans without a personal guarantee attribution. Our extended results suggest that the subjective voluntary disclosures in the repeated game have greater information content only when borrowers have a successful borrowing experience. We also point out that voluntary disclosures in the repeated game are associated with a lower probability of default. Our results are robust to the Heckman two-step estimation that addresses the self-selection effect and a specification designed to rule out the alternative explanation from reputation in the repeated game. Our study provides new insights into the real effects of costless, voluntary and unverifiable disclosures on lending decisions.

Meaning and credibility of forward-looking disclosures: evidence from an entry game

“…Stocken (2000) analyzes the credibility of a manager's disclosure of privately observed non-verifiable information in a repeated cheap-talk game setting and indicates that managers do not make any informative disclosures (or, communication does not occur) in the single-period game, whereas in the repeated game, the manager almost always truthfully reveals his private information. The empirical evidence by Li et al (2020) supports the arguments of Stocken (2000) that voluntary disclosures have higher credibility in the repeated game than in the one-stage game. From another perspective, D'Augusta and DeAngelis (2017) notes that accounting information is able to prevent "cheap talk" in qualitative disclosure by providing a benchmark to evaluate the truthfulness of managers' statements.…”

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