Creditor Rights and Strategic Default: Evidence from India
Journal of Law And Economics, 2020
52 Pages Posted: 19 Mar 2020
Date Written: February 24, 2020
I examine whether higher creditor rights prevent strategic default. Borrowers who cross either of two thresholds are exempt from a creditor rights law in India. Using a loan day-level dataset, I ﬁnd that loan performance is better when the law applies and that outperformance increases after a further rise in creditor rights. To discern the strategic motive, I use an unprecedented invalidation of the Indian currency whereby holders of high-value currency were forced to declare their cash holdings to banks. Defaulters exempt from the law showed a greater tendency to repay their loans during the ban period.
Keywords: Banking, Creditor Rights, Strategic Default
JEL Classification: G21, O2, Q14
Suggested Citation: Suggested Citation