Review of Financial Studies Vol. 31 No. 5 2018
The Economic Effects of a Borrower Bailout: Evidence from an Emerging Market
Abstract
We study the credit market impact and real effects of one of the largest borrower bailouts in history, enacted by the government of India against the backdrop of the 2007–2008 financial crisis. We find that the bailout led to a significant reallocation of credit and greater defaults, but had no offsetting positive effect on productivity, wages, or consumption. Post-program loan performance deteriorates faster in districts with greater program exposure, an effect that is not driven by greater risk-taking of banks. Loan defaults become more sensitive to the electoral cycle after debt relief, suggesting strategic default in response to the bailout. Received December 1, 2015; editorial decision April 11, 2017 by Editor Philip Strahan.
- DOI
- 10.1093/rfs/hhx073
- Volume
- 31
- Issue
- 5
- Pages
- 1752-1783
- Language
- en
- Sources
- openalex crossref