Peer Financial Distress and Individual Leverage

• 成果类型: Article
• 署名作者: Kalda, Ankit
• 署名单位: Indiana University System; Indiana University Bloomington
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhz077
• 发表日期: 2020
• 页码: 3348
• 关键词: negative equity; social-interaction; household debt; risk-taking; experiences; foreclosure; networks; default; size

摘要

Using health shocks to identify financial distress situations, I document that peer distress leads to a decline in individual leverage and debt on average. Individual leverage declines by 5.7% and remains deflated for at least five years following peer distress. This decline occurs as individuals borrow less on the intensive margin, pay higher fractions of their debt and save more while their income remains unchanged. As a result, individuals are less likely to default during the period following peer distress. The heterogeneity in responses highlight the role of changes in beliefs and preferences as the underlying mechanism.