Cultural Differences and Geography as Determinants of Online Prosocial Lending

Abstract

In this paper, we analyze patterns of transaction between individuals using data drawn from Kiva.org, a global online crowdfunding platform that facilitates prosocial, peer-to-peer lending. Our analysis, which employs an aggregate dataset of country-to-country lending volumes based on more than three million individual lending transactions that took place between 2005 and 2010, considers the dual roles of geographic distance and cultural differences on lenders' decisions about which borrowers to support. While cultural differences have seen extensive study in the Information Systems literature as sources of friction in extended interactions, here, we argue and demonstrate their role in individuals' selection of a transaction partner. We present evidence that lenders do prefer culturally similar and geographically proximate borrowers. An analysis of the marginal effects indicates that an increase of one standard deviation in the cultural differences between lender and borrower countries is associated with 30 fewer lending actions, while an increase of one standard deviation in physical distance is associated with 0.23 fewer lending actions. We also identify a substitution effect between cultural differences and physical distance, such that a 50 percent increase in physical distance is associated with an approximate 30 percent decline in the effect of cultural differences. Considering approaches to overcoming the observed cultural effect, we offer some empirical evidence of the potential of IT-based trust mechanisms, focusing on Kiva's reputation rating system for microfinance intermediaries. We discuss the implications of our findings for pro-social lending, online crowdfunding, and electronic markets more broadly.

The Hidden Cost of Accommodating Crowdfunder Privacy Preferences: A Randomized Field Experiment

“…Studies have looked at various drivers of campaign fundraising outcomes, including pitch framing and information disclosure (Ahlers et al 2012;Herzenstein et al 2011b), fundraisers' social networks Mollick 2014), geography and culture (Agarwal et al 2011;Burtch et al 2014;. However, perhaps the most common subject of study has been peer influence amongst contributors (Burtch 2011;Burtch et al 2013b;Herzenstein et al 2011a;Kim and Viswanathan 2013;Zhang and Liu 2012).…”

Effects of Donor- and Supporter-Based Campaign Networks on Crowdfunding Campaign Success

“…This may be due to two reasons. First, donor-based ties (strong ties) may connect campaigns with high homophily possibly due to similar causes or geographic locations [37,38]. These similar campaigns compete against each other for donations from the Fundly community.…”

“…According to SNT, strong ties are associated a higher similarity between the nodes than weak ties [36]. Since previous research suggests that individuals donate to borrowers that are similar to themselves in terms of culture, social characteristics, or geography [37][38][39][40], a strong tie between two campaigns due to shared donors may represent a high homophily or affinity [33] due to similarities between the campaigns. When a campaign has a high degree or eigenvector centrality, it is connected to many other campaigns through shared donors.…”

Team rivalry and lending on crowdfunding platforms: an empirical analysis

“…Members may then be reluctant to cooperate with a rival team (Kogut 1989;Evald and Bager 2008). Furthermore, as lenders more likely to contribute to borrowers with a shorter culture distance and close social resemblance to themselves (Burtch et al 2014;Galak et al 2011), members may infer from a rival team contribution that the project may not be a good match for their own team. Thus, we would expect that a team is less likely to contribute to a project that has received a contribution from its rival team.…”