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

Abstract

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

Tantri, Prasanna L., Creditor Rights and Strategic Default: Evidence from India (February 24, 2020). Journal of Law And Economics, 2020, Available at SSRN: https://ssrn.com/abstract=3543249

Prasanna L. Tantri (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

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