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Consumer Bankruptcy and Information

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Author Info

  • Jason Allen
  • H. Evren Damar
  • David Martinez-Miera

Abstract

We analyze the relationship between the intensity of banks’ use of soft-information and household bankruptcy patterns. Using a unique data set on the universe of Canadian household bankruptcies, we document that bankruptcy rates are higher in markets where the collection of soft, or qualitative locally gathered information, is the weakest. Using two Canadian bank mergers as exogenous variation in local market structure, we show that the differences in bankruptcy rates are not due to changes in the supply of credit. Our findings indicate that screening via hard-information is not a perfect substitute for soft-information. Instead, the two appear to be complements.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 12-18.

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Length: 38 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bca:bocawp:12-18

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Keywords: Financial institutions; Financial services;

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References

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  1. Fabio Panetta & Fabiano Schivardi & Matthew Shum, 2004. "Do mergers improve information? Evidence from the loan market," Temi di discussione (Economic working papers) 521, Bank of Italy, Economic Research and International Relations Area.
  2. Igor Livshits & James MacGee & Michèle Tertilt, 2011. "Costly Contracts and Consumer Credit," University of Western Ontario, Economic Policy Research Institute Working Papers 20111, University of Western Ontario, Economic Policy Research Institute.
  3. Charles Freedman & Walter Engert, 2003. "Financial Developments in Canada: Past Trends and Future Challenges," Bank of Canada Review, Bank of Canada, vol. 2003(Summer), pages 3-16.
  4. Jason Allen & Robert Clark & Jean-François Houde, 2008. "Market Structure and the Diffusion of E-Commerce: Evidence from the Retail Banking Industry," Working Papers 08-32, Bank of Canada.
  5. Hyytinen, Ari & Toivanen, Otto, 2004. "Monitoring and market power in credit markets," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 269-288, February.
  6. Ali Hortaçsu & Chad Syverson, 2007. "Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices," Journal of Political Economy, University of Chicago Press, vol. 115, pages 250-301.
  7. Edelberg, Wendy, 2006. "Risk-based pricing of interest rates for consumer loans," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2283-2298, November.
  8. Ian Domowitz & Robert L. Sartain, 1999. "Determinants of the Consumer Bankruptcy Decision," Journal of Finance, American Finance Association, vol. 54(1), pages 403-420, 02.
  9. Jason Allen & Robert Clark & Jean-François Houde, 2012. "Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending," Working Papers 12-4, Bank of Canada.
  10. Astrid Dick & Andreas Lehnert, 2007. "Personal bankruptcy and credit market competition," Staff Reports 272, Federal Reserve Bank of New York.
  11. Mitchell A. Petersen & Raghuram G. Rajan, 2000. "Does Distance Still Matter? The Information Revolution in Small Business Lending," NBER Working Papers 7685, National Bureau of Economic Research, Inc.
  12. Evren Damar, H., 2007. "Does post-crisis restructuring decrease the availability of banking services? The case of Turkey," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2886-2905, September.
  13. Justine S. Hastings, 2004. "Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California," American Economic Review, American Economic Association, vol. 94(1), pages 317-328, March.
  14. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
  15. Sumit Agarwal & Brent W. Ambrose & Souphala Chomsisengphet & Chunlin Liu, 2011. "The Role of Soft Information in a Dynamic Contract Setting: Evidence from the Home Equity Credit Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 633-655, 06.
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Cited by:
  1. Katya Kartashova & Ben Tomlin, 2013. "House Prices, Consumption and the Role of Non-Mortgage Debt," Working Papers 13-2, Bank of Canada.

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