When firms go public, standards drop
Maxime Cohen1, Guillaume Lapierre-Berger2, Juan Camilo Serpa3
1McGill University, Canada; 2McGill University, Canada; 3McGill University, Canada
Online platforms screen users who wish to benefit from their marketplaces. We show that when a platform transitions from private to public ownership, it will drop its screening standards, thus admitting otherwise unqualified users. Dropping standards ahead of an initial public offering allows platforms to increase their user base, leading stock investors to overvalue the stock (while imposing a cost on their users). We substantiate this hypothesis with data from p2p lending platforms.