Journal of Banking and Finance

Volume 152, July 2023, 106876

Homophilous Intensity in the Online Lending Market: Bidding Behavior and Economic Effects

Jianwen Li ^a, Bo Zhang ^a, Mingming Jiang ^a, Jinyan Hu ^a

a School of Economics, Shandong University, Jinan, P.R. China

Using transaction-level data from a large online lending marketplace, we explore the role of homophilous intensity in online lending and uncover the evidence of a significant impact of homophily on the bidding behavior and economic effects of both lenders and borrowers. Lenders are more likely to invest in borrowers with more homophilous traits, and homophily induces higher bidding amounts. Moreover, lenders charge lower prices to more homophilous borrowers, but are able to earn higher returns due to better repayment from these borrowers. Our findings suggest that homophilous intensity has a statistically and economically significant effect on both borrowers and lenders in the online lending environment.