Words Matter: The Role of Readability, Tone, and Deception Cues in Online Credit Markets

Qiang Gao, Mingfeng Lin, and Richard Sias

Using debt crowdfunding data, we investigate whether borrowers’ writing style is associated with online lender and borrower behaviors, whether the information contained in linguistic style can mitigate information asymmetry in peer-to-peer markets, and whether online investors correctly interpret the economic value of written texts. Peer-to-peer lenders bid more aggressively, are more likely to fund, and charge lower rates to online borrowers whose writing is more readable, more positive, and contains fewer deception cues. Moreover, such borrowers are less likely to default. Online investors, however, fail to fully account for the information contained in borrowers’ writing.