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Contagious Effects of a Political Intervention in Debt Contracts: Evidence Using Loan-Level Data

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  • Prasanna L Tantri

Abstract

Using an unexpected government regulation that restricted the ability of microfinance institutions to recover loans in one Indian state, I examine whether this intervention affected bank loan performance. The bank loan delinquency rate significantly increased as a result. In response, the ex post bank credit supply declined by more than half. For identification, I compare loans from branches located in regions subject to this intervention with loans from nearby branches of the same bank located in regions not subject to the intervention. I conclude that political interventions in credit markets could have significant spillover effects.Received October 29, 2016; editorial decision November 28, 2017 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Prasanna L Tantri, 2018. "Contagious Effects of a Political Intervention in Debt Contracts: Evidence Using Loan-Level Data," The Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4556-4592.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:11:p:4556-4592.
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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. João Paulo Coelho Ribeiro & Fábio Duarte & Ana Paula Matias Gama, 2022. "Does microfinance foster the development of its clients? A bibliometric analysis and systematic literature review," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-35, December.
    3. Arzi Adbi, 2023. "Financial Sustainability of For-Profit Versus Non-Profit Microfinance Organizations Following a Scandal," Journal of Business Ethics, Springer, vol. 188(1), pages 57-74, November.

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