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Cosigners as Collateral

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Author Info
Stephan Klonner
Ashok Rai (Williams College)

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Abstract

We investigate the role of cosigners as collateral using data from a South Indian financial institution. Using an exogenous change in the cosigner requirement, we establish a negative causal effect of cosigners on defaults: an increase in the number of cosigners reduces defaults all these equal. Our results suggest that a one-sixth increase in the number of cosigners reduces the incidence of a default by 7.5 percent. While most theories of collateral predict that increased cosigners will reduce defaults, we are first to find empirical evidence of this effect.

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File URL: http://www.williams.edu/Economics/rai/cosign_klonner_rai_may08.pdf
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Publisher Info
Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2008-04.

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Length: 31 pages
Date of creation: May 2008
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Handle: RePEc:wil:wileco:2008-04

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Related research
Keywords: credit; default; cosigner; rosca;

Find related papers by JEL classification:
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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This page was last updated on 2009-12-13.

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