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Corruption, economic development, and auto loan delinquency: Evidence from China

Author

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  • Duan, Huiqiong
  • Snyder, Thomas
  • Yuan, Weici

Abstract

We study the predictors of loan delinquency using a unique dataset on auto loans in China. In addition to confirming that demographic characteristics have predictive power for delinquency, we find a strong effect of corruption norms: individuals from provinces with a higher level of corruption accumulate significantly more overdue payments. Our evidence also indicates that better economic development significantly reduces the number of loan delinquencies. We mainly focus on late payments made during the grace period (within 10 days past due), which do not incur a penalty, so borrowers have no financial incentive for a timely payment and their actions should reflect cultural norms. It implies that economic development is positively related to cultural norms. We also observe convergence to the outcome predicted by the grace period: learning the absence of punishment for overdue payment in the first 10 days, borrowers become more delinquency-prone when the loan contracts have been in effect for a longer time.

Suggested Citation

  • Duan, Huiqiong & Snyder, Thomas & Yuan, Weici, 2018. "Corruption, economic development, and auto loan delinquency: Evidence from China," Journal of Economics and Business, Elsevier, vol. 99(C), pages 28-38.
    • Handle: RePEc:eee:jebusi:v:99:y:2018:i:c:p:28-38
    DOI: 10.1016/j.jeconbus.2018.08.001
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    More about this item

    Keywords

    Car loan delinquency; Corruption; Economic development; Cultural norms;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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