Cosigners as Collateral
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.
|Date of creation:||May 2008|
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