by Hongchang Wang and Eric Overby (under second round revision for Management Science (2nd round revise and resubmit))
Abstract: By providing quick and easy access to credit, online lending platforms may help borrowers overcome financial setbacks and/or refinance high-interest debt, thereby decreasing bankruptcy filings. On the other hand, these platforms may cause borrowers to overextend themselves financially, leading to a “debt trap” and increasing bankruptcy filings. To investigate the impact of online lending on bankruptcy filings, we leverage variation in when state regulators granted approval for a major online lending platform – Lending Club – to issue peer-to-peer loans. Using a difference-in-differences approach, we find that approval of Lending Club leads to an increase in bankruptcy filings. A complementary instrumental variable analysis using loan-level data yields similar results. We find suggestive evidence that the ease of receiving a Lending Club loan causes some borrowers to overextend themselves financially, leading to bankruptcy. We also find that “strategic” borrowing – in which borrowers who are considering bankruptcy use a Lending Club loan to restructure their debt or to engage in last-minute consumption before they file – may play a role. Our results suggest that recent initiatives from online lending platforms to control how borrowers use loans, such as Lending Club’s Direct Pay program that sends funds directly to creditors, can help these platforms provide safe and affordable credit. Our study adds to the literature that examines how online platforms influence society and the economy; it contributes to the literature that examines how financial products, services, and regulations influence bankruptcy filings; and it has policy implications for online lending design and regulation.
by Sinan Aral, Erik Brynjolfsson, Chris Gu, Hongchang Wang, and D.J. Wu (under first round review at Management Science)
Abstract: While IT intensive firms have frequently been found to be more productive, a critical question remains: Does IT cause productivity or are productive firms simply willing to spend more on IT? We address this question by examining the performance effects of enterprise systems investments in a sample of 675 large public U.S. firms of a large vendor from 1998 to 2005 in terms of the vendor’s three main suites of systems: Enterprise Resource Planning (ERP), Supply Chain Management (SCM), and Customer Relationship Management (CRM). Our data has the unique feature of distinguishing the purchase of enterprise systems from their “go-live.” We find that purchase events of ERP were uncorrelated with performance while go-live events were positively correlated. This suggests that the use of ERP systems caused performance gains rather than performance leading to the purchase of ERP. For SCM and CRM, performance was correlated with both purchase and go-live events. Because SCM and CRM can only be installed after ERP, these results imply that firms with performance gains from ERP went on to purchase SCM and CRM. Robust to various specifications, these results provide an explanation of the simultaneity in IT value research that fits with rational economic theory: As firms that successfully implemented IT saw greater marginal benefits to additional IT investments, they reacted by investing in more IT. Our work suggests replacing “either-or” views of causality with a positive feedback loop conceptualization in which successful IT investments can initiate a “virtuous cycle” of additional investment and additional gain.