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The Role of Borrower-Cosigner Kinship Relations on Loan Default

Author

Listed:
  • Lucia dalla Pellegrina

    (University of Milano-Bicocca)

  • Antonio Scollo

    (BNP Paribas)

Abstract

Using data from a leading Italian microfinance provider we investigate the effect of kinship relations between borrowers and cosigners on loan defaults. We address causality issues using an instrumental variable built on the exogenous rule imposed by the lender that requires personal guarantees for loans exceeding € 5000. Results show that the presence of closely related cosigners tends to reduce defaults. We find that this is the result of a possible combined effect of both stronger solidarity and more effective psychological pressure exerted by relatives compared to other categories of cosigners.

Suggested Citation

  • Lucia dalla Pellegrina & Antonio Scollo, 2016. "The Role of Borrower-Cosigner Kinship Relations on Loan Default," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 2(3), pages 421-444, November.
    • Handle: RePEc:spr:italej:v:2:y:2016:i:3:d:10.1007_s40797-016-0039-6
    DOI: 10.1007/s40797-016-0039-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Microfinance institutions; Cosigner; Repayment behavior; Loan default;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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