Borrowers’ Distress and Debt Relief: Evidence from a Natural Experiment

Mukherjee, S and Subramanian, K and Tantri, P L (2018) Borrowers’ Distress and Debt Relief: Evidence from a Natural Experiment. The Journal of Law and Economics, 61 (4). pp. 607-635.

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Abstract

Using unique borrower-level data, we study the causal effect of debt relief on the loan performance of distressed and nondistressed borrowers. We employ a regression discontinuity design that exploits exogenous cutoff dates underlying the 2008 Indian debt waiver program to separate defaulters on loans into beneficiaries and nonbeneficiaries of waivers. By identifying distress before the waiver program using exogenous borrower-level shocks, we examine performance on loans originated after the waiver program. Loan performance of nondistressed beneficiaries worsens, while that of distressed borrowers improves. While existing studies aggregate the effects of debt relief across distressed and nondistressed borrowers, we highlight crucial differences between them.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Subramanian, KUNSPECIFIED
Tantri, P LUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: Borrower, Natural Experiment
Subjects: Finance
Depositing User: Ilayaraja M
Date Deposited: 09 Jun 2019 14:33
Last Modified: 09 Jun 2019 19:08
URI: http://eprints.exchange.isb.edu/id/eprint/1059
Publisher URL: https://doi.org/10.1086/701902
Publisher OA policy: http://sherpa.ac.uk/romeo/issn/0022-2186/
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