Abstract
We study credit access in informal economies where market institutions, such as financial reporting systems, auditing, and courts, are nonexistent or function poorly. Using the setting of a large bazaar in India, we find that community membership plays a vital role in access to credit. Wholesalers are more likely to provide credit and offer greater amounts of credit to within-community retailers, and are more lenient when these retailers are delinquent. Furthermore, wholesalers who lent preferentially to their community retailers pre-COVID are more likely to receive help from their community following the COVID-19–related income shock, particularly from same-community landlords and suppliers. Also, wholesalers with low endowments, those with greater within-community information flow about them, and those facing income shocks are more likely to provide preferential credit to their community retailers. Our findings are consistent with an indirect reciprocity mechanism explaining within-community credit flows.
| Original language | English (US) |
|---|---|
| Article number | 101697 |
| Journal | Journal of Accounting and Economics |
| Volume | 78 |
| Issue number | 1 |
| DOIs | |
| State | Published - Aug 2024 |
Funding
\u2606 We thank Joanna Wu (Editor), Karthik Balakrishnan (Reviewer), Ray Ball, Anne Beatty, Marianne Bertrand, Jonathan Bonham, Ron Burt, Pradeep Chintagunta, Anna Costello, Doug Diamond, Alex Frankel, Rich Frankel, Ilan Guttman, Zhiguo He, Jung Koo Kang, Anya Kleymenova, Christian Leuz, Nicola Limodio, Xiumin Martin, Beatrice Michaeli, Kaivan Munshi, Shailesh Nagar, Tiplut Nongbri, Rohini Pande, Jane Risen, Raghuram Rajan, Stephen Ryan, Doug Skinner, Abbie Smith, Amir Sufi, Chad Syverson, George Wu, and Luigi Zingales for helpful comments and discussions. We thank seminar participants at the University of Chicago Microeconomics workshop, Claremont McKenna College, 2021 Dopuch Accounting Research Conference, HKUST, the Midwest International Economic Development Conference, University of Missouri, NYU, 2021 SFS Cavalcade North America, USC, Temple University, Texas A&M, Tilburg University, University of Toronto, Tulane University, and the University of Pennsylvania's Wharton School for their helpful suggestions. We are grateful to Shailesh Nagar and NRMC for help with the data collection. We thank Tim Gray and James Kiselik for editorial assistance. Rimmy E. Tomy gratefully acknowledges the support of the Fama-Miller Center, IGM, and the Kathryn and Grant Swick Faculty Research Fund at the University of Chicago Booth School of Business. This research was approved as exempt by the Institutional Review Board at the University of Chicago (ID: IRB18-1031).
Keywords
- Asymmetric information
- Iewduh
- India
- Informal economies
- Information sharing
- Lending
- Reciprocity
- Social capital
- Trade credit
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
