nach oben

Journal of Financial Services Research

Erschienen in:

12.04.2021

Collateral Value and Strategic Default: Evidence from Auto Loans

verfasst von: Dimuthu Ratnadiwakara

Erschienen in: Journal of Financial Services Research | Ausgabe 3/2021

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

I study the impact of changes to collateral value on borrowers’ default decisions on auto loans using two natural experiments in Sri Lanka. Changes in vehicle import tax rates and loan-to-value ratio caps on auto loans generated plausibly exogenous variation in the resale value of vehicles already pledged as collateral. Using proprietary auto loan performance data, I estimate that a 10% drop in the collateral value corresponds to a 44% increase in the default rate. I also find that collateral value is more important for borrowers with higher outstanding loan balances.

Vorheriger Artikel Employee Treatment and Bank Default Risk during the Credit Crisis

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Countervailing non-financial factors include factors such as moral aversion to default (Bursztyn et al. 2019; Guiso et al. 2013), emotional attachment (Guiso et al. 2013; Bhutta et al. 2017), fear over the perceived consequences of default (White 2010; Seiler et al. 2012), people’s subjective expectations (Kuhnen and Melzer 2018), inattention (Andersen et al. 2015; Agarwal et al. 2015) and financial illiteracy (Burke and Mihaly 2012)

3-wheelers are also known as auto-rickshaws, tuk-tuks, or trishaws. These are motorized vehicles with three wheels mainly used as taxis in Sri Lanka.

The price of larger-engine cars was not affected by the November 2014 tax rate change.

3-wheelers are mainly used as a productive asset (as opposed to a consumption asset) and one of the control samples is restricted to loans used to finance the purchase of vehicles that are used for productive purposes.

Although these drops in collateral values are not large enough make the outstanding balance of the loan greater than the value of the vehicle, I provide a simplified illustration to show that borrowers can have perceived negative equity primarily due the differences in (high) interest rates charged on auto loans and (low) discount rates.

http://www.motortraffic.gov.lk/web/images/stories/document/pop2015.pdf.

https://www.unescap.org/sites/default/files/SUTI%20%20Mobility%20Assessment%20Report%20-%20Colombo.pdf

A zero β_s when m < 0 provides support for the parallel trends assumption.

I construct matched control samples in later tests

Agarwal S, Ambrose BW, Chomsisengphet S (2008) Determinants of automobile loan default and prepayment. Econ Perspect 32(3)

Agarwal S, Rosen RJ, Yao V (2015) Why do borrowers make mortgage refinancing mistakes? Manag Sci 62(12):3494–3509CrossRef

Ambrose BW, Buttimer RJ Jr, Capone CA (1997) Pricing mortgage default and foreclosure delay. J Money Credit Bank:314–325

Andersen S, Campbell JY, Nielsen KM, Ramadorai T (2015) Inattention and inertia in household finance: Evidence from the danish mortgage market

Artavanis NT, Spyridopoulos I (2018) Tax evasion, liquidity preference, financial literacy and their role in strategic default

Bajari P, Chu CS, Park M (2007) An empirical model of subprime mortgage default from 2000 to

Berger AN, Udell GF (1990) Collateral, loan quality and bank risk. J Monet Econ 25(1):21–42CrossRef

Bhutta N, Dokko J, Shan H (2017) Consumer ruthlessness and mortgage default during the 2007 to 2009 housing bust. J Financ 72(6):2433–2466CrossRef

Blouin A, Macchiavello R (2019) Strategic default in the international coffee market. Quart J Econ 134(2):895–951CrossRef

Burke J, Mihaly K (2012) Financial literacy, social perception and strategic default

Bursztyn L, Fiorin S, Gottlieb D, Kanz M (2019) Moral incentives in credit card debt repayment: Evidence from a field experiment. J Polit Econ 127 (4):000–000CrossRef

Campbell JY, Cocco JF (2015) A model of mortgage default. J Financ 70(4):1495–1554CrossRef

Chan S, Haughwout A, Hayashi A, Van der Klaauw W (2016) Determinants of mortgage default and consumer credit use: the effects of foreclosure laws and foreclosure delays. J Money Credit Bank 48(2-3):393–413CrossRef

Cunningham C, Gerardi K, Shen L (2020) The double trigger for mortgage default: Evidence from the fracking boom. Management Science

Deng Y, Quigley JM, Van Order R (2000) Mortgage terminations,heterogeneity, and the exercise of mortgage options. Econometrica 68(2):275–302CrossRef

Foote CL, Gerardi K, Willen PS (2008) Negative equity and foreclosure: Theory and evidence. J Urban Econ 64(2):234–245CrossRef

Foster C, Van Order R (1984) An option-based model of mortgage default. Housing Fin Rev 3:351

Gerardi K, Herkenhoff KF, Ohanian LE, Willen PS (2017) Can’t pay or won’t pay? unemployment, negative equity, and strategic default. Rev Financ Stud 31(3):1098–1131CrossRef

Ghulam Y, Hill S (2017) Distinguishing between good and bad subprime auto loans borrowers: the role of demographic, region and loan characteristics. Rev Econ Financ 10(4):49–62

Godlewski CJ, Weill L (2011) Does collateral help mitigate adverse selection? a cross-country analysis. J Financ Serv Res 40(1):49–78CrossRef

Guiso L, Sapienza P, Zingales L (2013) The determinants of attitudes toward strategic default on mortgages. J Financ 68(4):1473–1515CrossRef

Hart O, Moore J (1998) Default and renegotiation: a dynamic model of debt. Quart J Econ 113(1):1–41CrossRef

Hart O (2009) Hold-up, asset ownership, and reference points. Quart J Econ 124(1):267–300CrossRef

Heitfield E, Sabarwal T (2004) What drives default and prepayment on subprime auto loans? J Real Estate Financ Econ 29(4):457–477

Kau JB, Keenan DC, Muller WJ III, Epperson JF (1987) The valuation and securitization of commercial and multifamily mortgages. J Bank Financ 11(3):525–546CrossRef

Klein B (1996) Why hold-ups occur: the self-enforcing range of contractual relationships. Econ Inquiry 34(3):444–463CrossRef

Kuhnen CM, Melzer BT (2018) Noncognitive abilities and financial delinquency: The role of self-efficacy in avoiding financial distress. J Financ 73 (6):2837–2869CrossRef

Mayer C, Morrison E, Piskorski T, Gupta A (2014) Mortgage modification and strategic behavior: evidence from a legal settlement with countrywide. Am Econ Rev 104(9):2830–57CrossRef

Palmer C (2015) Why did so many subprime borrowers default during the crisis: Loose credit or plummeting prices?

Scharlemann TC, Shore SH (2016) The effect of negative equity on mortgage default: Evidence from hamp’s principal reduction alternative. Rev Financ Stud 29(10):2850–2883CrossRef

Seiler MJ, Seiler VL, Lane MA, Harrison DM (2012) Fear, shame and guilt: economic and behavioral motivations for strategic default. Real Estate Econ 40(s1)

Titman S, Torous W (1989) Valuing commercial mortgages: an empirical investigation of the contingent-claims approach to pricing risky debt. J Financ 44(2):345–373

Uchida H (2011) What do banks evaluate when they screen borrowers? soft information, hard information and collateral. J Financ Serv Res 40(1):29–48CrossRef

White BT (2010) Underwater and not walking away: shame, fear, and the social management of the housing crisis. Wake Forest L Rev 45:971

Wu D, Zhao X (2016) Determinants of auto loan defaults and implications on stress testing

Yannelis C (2017) Strategic default on student loans

Zhu S, Pace RK (2015) The influence of foreclosure delays on borrowers’ default behavior. J Money Credit Bank 47(6):1205–1222CrossRef

Titel: Collateral Value and Strategic Default: Evidence from Auto Loans
verfasst von: Dimuthu Ratnadiwakara
Publikationsdatum: 12.04.2021
Verlag: Springer US
Erschienen in: Journal of Financial Services Research / Ausgabe 3/2021
Print ISSN: 0920-8550
Elektronische ISSN: 1573-0735
DOI: https://doi.org/10.1007/s10693-021-00350-3