Consumer Bankruptcy and Default: The Role of Individual Social Capital

37 Pages Posted: 23 May 2009 Last revised: 30 Nov 2010

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC)

Chunlin Liu

University of Nevada, Reno - College of Business

Date Written: May 22, 2010

Abstract

In this paper, we empirically assess the role of individual social capital on personal bankruptcy and default outcomes in the consumer credit market. After controlling for a borrower’s risk score, debt, income, wealth, and legal and economic environments, we find that default/bankruptcy risk rises and then falls over the lifecycle, while a borrower who owns a home or is married has a lower risk of default/bankruptcy. Moreover, a borrower who migrates 190 miles from his “state of birth” is 17 percent more likely to default and 15 percent more likely to file for bankruptcy, while a borrower who continues to live in his state of birth is 14 and 10 percent less likely to default and file for bankruptcy, respectively. A borrower who moves to a rural area is 9 and 7 percent less likely to default and declare bankruptcy, respectively. We also find that measures of social networks, norms, and cooperation and trust (i.e., aggregate social capital) are inversely related to consumer bankruptcy.

Keywords: Social Capital, Consumer Bankruptcy, Default, Credit Risk, Credit Cards, Banking

JEL Classification: D1, D8, G2

Suggested Citation

Agarwal, Sumit and Chomsisengphet, Souphala and Liu, Chunlin, Consumer Bankruptcy and Default: The Role of Individual Social Capital (May 22, 2010). Journal of Economic Psychology, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1408757

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)

Chunlin Liu (Contact Author)

University of Nevada, Reno - College of Business ( email )

University of Nevada, Reno
Reno, NV 89557-0016
United States

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