Group social capital and lending outcomes in the financial credit market: An empirical study of online peer-to-peer lending

• Empirical discovery of the mixed effects of group-level social capital.
• Measurement of the group social capital in different dimensions.
• Extension of social capital theories by introducing institutional environment.
• Recommendation for mitigation of the negative effects of group social capital.

We studied the relationship between individuals’ group social capital and their lending outcomes in the online peer-to-peer financial credit market, where individual lenders make direct unsecured microloans to other individual borrowers. Despite its ability to facilitate economic exchange, social capital as public goods may also cause free-rider problems, particularly in an online environment. Based on the analyses of transaction data collected from one of the largest online peer-to-peer lending platform in the U.S., we found that the borrower’s general group social capital (i.e., group membership) and relational social capital (i.e., group credibility and verifiability, and group trust) yielded inconsistent effects, and the borrower’s structural social capital (i.e., group inclusiveness) had a negative impact on, his/her funding and repayment performance. We discuss the implications of our findings for reconciling two major but conflicting theoretical views of social capital and for improving institutional mechanism design in a decentralized online financial credit market.