Consumer Default, Credit Reporting and Borrowing Constraints

66 Pages Posted: 6 Dec 2016

See all articles by Mark J. Garmaise

Mark J. Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management

Gabriel Natividad

Universidad de Piura

Date Written: December 1, 2016

Abstract

Why do negative credit events lead to long-term borrowing constraints? Exploiting banking regulations in Peru and utilizing currency movements, we show that consumers who face a credit rating downgrade due to bad luck experience a three-year reduction in financing. Consumers respond to the shock by paying down their most troubled loans, but nonetheless end up more likely to exit the credit market. For a set of borrowers who experience severe delinquency, we find that the associated credit reporting downgrade by itself accounts for 25%-65% of their observed decline in borrowing at various horizons over the following several years.

Keywords: Consumer Default, Credit Reporting, Household Borrowing Constraints

JEL Classification: G21, D14, K35

Suggested Citation

Garmaise, Mark J. and Natividad, Gabriel, Consumer Default, Credit Reporting and Borrowing Constraints (December 1, 2016). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2879082

Mark J. Garmaise (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Gabriel Natividad

Universidad de Piura ( email )

Calle Martir Olaya 162
Lima, Lima L18
Peru

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