Creditors’ Rights and Strategic Default: Evidence from India
I examine whether stronger creditors’ 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 data set, I find that loan performance is better when the law applies and that outperformance increases after a further rise in creditors’ 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 after invalidation.
"Creditors’ Rights and Strategic Default: Evidence from India,"
Journal of Law and Economics: Vol. 63:
3, Article 1.
Available at: https://chicagounbound.uchicago.edu/jle/vol63/iss3/1