Contagious Effects of a Political Intervention in Debt Contracts: Evidence Using Loan-Level Data

91 Pages Posted: 7 Dec 2017

Date Written: December 1, 2017

Abstract

Using an unexpected government regulation that restricted the ability of micro-finance institutions to recover loans in one Indian state, we examine whether this intervention impacted bank loan performance. The bank loan delinquency rate increased significantly as a result. In response, the ex-post bank credit supply declined by more than half. For identification, we compare loans from branches located in regions subject to this intervention with loans from nearby branches of the same bank located in regions not subject to the intervention. We conclude that political interventions in credit markets could have significant spillover effects.

Keywords: Political Intervention

JEL Classification: D01

Suggested Citation

Tantri, Prasanna L., Contagious Effects of a Political Intervention in Debt Contracts: Evidence Using Loan-Level Data (December 1, 2017). Available at SSRN: https://ssrn.com/abstract=3081340 or http://dx.doi.org/10.2139/ssrn.3081340

Prasanna L. Tantri (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

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