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Creditors’ Rights and Strategic Default: Evidence from India

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  • Prasanna Tantri

Abstract

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.

Suggested Citation

  • Prasanna Tantri, 2020. "Creditors’ Rights and Strategic Default: Evidence from India," Journal of Law and Economics, University of Chicago Press, vol. 63(3), pages 411-447.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/708161
    DOI: 10.1086/708161
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    Cited by:

    1. Tantri, Prasanna, 2021. "Identifying ever-greening: Evidence using loan-level data," Journal of Banking & Finance, Elsevier, vol. 122(C).
    2. Shafiq Ur Rehman & Mustafa Al-Shaikh & Patrick Bernard Washington & Ernesto Lee & Ziheng Song & Ibrahim A. Abu-AlSondos & Maha Shehadeh & Mahmoud Allahham, 2023. "FinTech Adoption in SMEs and Bank Credit Supplies: A Study on Manufacturing SMEs," Economies, MDPI, vol. 11(8), pages 1-15, August.
    3. Agarwal, Samanvaya & Kamath, Saipriya & Subramanian, Krishnamurthy & Tantri, Prasanna, 2022. "Board conduct in banks," Journal of Banking & Finance, Elsevier, vol. 138(C).
    4. Agarwal, Samanvaya & Kamath, Saipriya & Subramanian, Krishnamurthy & Tantri, Prasanna, 2022. "Board conduct in banks," LSE Research Online Documents on Economics 114400, London School of Economics and Political Science, LSE Library.

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