Venture capital certification and customer response: Evidence from P2P lending platforms

52 Pages Posted: 1 Oct 2018 Last revised: 8 Jul 2020

See all articles by Emma Li

Emma Li

Department of Finance

Li Liao

Tsinghua University - PBC School of Finance

Zhengwei Wang

Tsinghua University - PBC School of Finance

Hongyu Xiang

Beijing Normal University

Date Written: September 30, 2018

Abstract

This paper examines whether the certification effect of VCs extends to firm’s potential customers, and whether, by certifying firms’ values to potential customers, VCs provide value to firms. Using weekly trading data from P2P lending platforms in China, we find that the amount of loans facilitated and the number of lenders increase significantly by 25.7% and 49.3%, respectively, immediately after announcements that P2P lending platforms obtain VC investment. We find that this certification effect increases with measures of VC reputation and measures of information asymmetry between P2P lending platforms and potential customers. A difference-in-differences analysis provides consistent results, which are robust after controlling for the effects of news, advertising, and funding. We also document that VC-backed platforms are less likely to default than non-VC-backed platforms. This result provides indirect evidence that VC backing has long-term benefits beyond the news and advertising effects.

Keywords: Venture capital certification, P2P lending platform, Information asymmetry

JEL Classification: G23, G24

Suggested Citation

Li, Emma and Liao, Li and Wang, Zhengwei and Xiang, Hongyu, Venture capital certification and customer response: Evidence from P2P lending platforms (September 30, 2018). Journal of Corporate Finance, Vol. 60, 2020, Available at SSRN: https://ssrn.com/abstract=3257748 or http://dx.doi.org/10.2139/ssrn.3257748

Emma Li

Department of Finance ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia

Li Liao

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Zhengwei Wang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China

Hongyu Xiang (Contact Author)

Beijing Normal University ( email )

Haidian District
Beijing 100083
China

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