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Consumer bankruptcy and default: The role of individual social capital

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  • Agarwal, Sumit
  • Chomsisengphet, Souphala
  • Liu, Chunlin

Abstract

In this paper, we empirically assess the role of individual social capital on personal bankruptcy and default outcomes in the consumer credit market. After controlling for a borrower's risk score, debt, income, wealth, and legal and economic environments, we find that default/bankruptcy risk rises and then falls over the lifecycle, while a borrower who owns a home or is married has a lower risk of default/bankruptcy. Moreover, a borrower who migrates 190Â miles from his "state of birth" is 17% more likely to default and 15% more likely to file for bankruptcy, while a borrower who continues to live in his state of birth is 14% and 10% less likely to default and file for bankruptcy, respectively. A borrower who moves to a rural area is 9% and 7% less likely to default and declare bankruptcy, respectively. We also find that measures of social networks, norms, and cooperation and trust (i.e., aggregate social capital) are inversely related to consumer bankruptcy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 32 (2011)
Issue (Month): 4 (August)
Pages: 632-650

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Handle: RePEc:eee:joepsy:v:32:y:2011:i:4:p:632-650

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Web page: http://www.elsevier.com/locate/joep

Related research

Keywords: Social capital Consumer bankruptcy Default Credit risk Credit cards Banking;

References

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Cited by:
  1. Brown, Sarah & Ghosh, Pulak & Taylor, Karl, 2014. "Household Finances and Social Interaction: Bayesian Analysis of Household Panel Data," IZA Discussion Papers 8301, Institute for the Study of Labor (IZA).
  2. Weigert, Florian, 2012. "In Search of Cushion? Crash Aversion and the Cross-Section of Expected Stock Returns Worldwide," Working Papers on Finance 1325, University of St. Gallen, School of Finance, revised Mar 2013.

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