Creditor Rights and Strategic Default: Evidence from India
By Prasanna Tantri
Journal of Law and Economics | August 2020
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papers.ssrn.com/sol3/papers.cfm?abstract_id=3543249
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Tantri, Prasanna. Creditor Rights and Strategic Default: Evidence from India Journal of Law and Economics papers.ssrn.com/sol3/papers.cfm?abstract_id=3543249.
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Journal of Law and Economics, 2020
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Abstract
We examine whether higher creditor rights prevent strategic default. Borrowers who cross either of two thresholds are exempt from a creditor rights law in India. Using a loan day-level dataset, we find that loan performance is better when the law applies and that outperformance increases after a further rise in creditor rights. To discern the strategic motive, we use an unprecedented invalidation of the Indian currency whereby holders of high-value currency were forced to declare their cash holdings to banks. Defaulters exempt from the law showed a greater tendency to repay their loans during the ban period.

Prasanna Tantri is an Associate Professor of Finance and the Executive Director of the Centre for Analytical Finance at the Indian School of Business (ISB). He also serves as an Independent Director and Chair of the Audit Committee at Power Finance Corporation. In 2o24, he was appointed as a Member of the Technical Advisory Committee for the Evaluation of Schemes for the Promotion of Digital Payments in India, under the Development Monitoring & Evaluation Office (DMEO), NITI Aayog.

Professor Tantri has previously been a part of the Expert Working Group at the National Stock Exchange and a Member of the Technical Group on the Social Stock Exchange, constituted by the Securities and Exchange Board of India. His research interests include banking, financial inclusion, financial contagion, regulation, and the relationship between politics and finance.

Prasanna Tantri (1)
Prasanna Tantri