Area: Finance

Committee Members: Dr. Sudheer Chava (Chair), Dr. Heather Tookes (Yale University), Dr. Rohan Ganduri (Emory University), Dr. Manpreet Singh, Dr. Manasa Gopal, Dr. Nikhil Paradkar (University of Georgia)

Title: Essays on Household Finance, FinTech, and Entrepreneurship

Dissertation Overview:

Essay 1: Banking on the Cloud: Impact on Credit Card Borrowers

Using unique credit bureau data on the near universe of U.S. credit cards from 2012 to 2021, I analyze how banks' adoption of cloud technologies affects the management of their credit card accounts and subsequent credit outcomes. I find that banks with a higher rate of cloud adoption, as proxied by the higher proportion of cloud-related job postings, initiate 11.1% more inquiries to track their borrowers' credit conditions and reduce credit card delinquencies (defaults) by 13.2% (7.4%) in the next year. These banks also tend to conduct more inquiries and increase credit limits more frequently on credit cards with high (low) utilization in the super-prime (subprime) segment. Additionally, I find that high-utilization credit cards issued by these banks have higher credit limits across all risk segments, particularly for super-prime and high-income borrowers. However, some of these credit cards held by subprime and low-income borrowers experience significant increases in delinquencies and defaults. My results highlight how banks' adoption of cloud technologies can have a differential impact on their borrowers.

Essay 2: Impact of Marketplace Lending on Consumers’ Future Borrowing Capacities and Borrowing Outcomes

Using comprehensive credit bureau data, we document that consumers who borrow from marketplace lending (MPL) platforms have lower credit scores and higher default rates in the long run relative to observably similar applicants for bank loans. The long-run credit scores and default rates of MPL borrowers are especially worse when the MPL platforms provide less information to MPL investors, when MPL borrowers are benchmarked against relationship bank borrowers, and for one-time MPL borrowers as compared to repeat MPL borrowers. Overall, our results suggest that MPL lenders face greater information asymmetries with respect to their borrowers than traditional banks.

Essay 3: Gender-based Sorting in the Credit Card Market

We document significant gender-based sorting across credit card products: women are 38% more likely than men to enter the credit card market through retail store credit cards than general-purpose credit cards. This gender-based sorting is unexplained by observable consumer characteristics, but is smaller among consumers with more education and credit-related experience. While men and women receive similar credit limits from the same lender, gender-based sorting across card types results in a 12% gender gap in borrowing capacities. The gender gap in borrowing capacities is persistent across time and is associated with a gender gap in consumption smoothing through credit cards.

Essay 4: Leaving Them Hanging:  Student Loan Forbearance, Distressed Borrowers, and Their Lenders

Multiple extensions of the federal student loan forbearance program since March 2020 resulted in a temporary payment pause that lasted more than 3 years. We examine the impact of long-term forbearance on the evolution of borrowing by distressed individuals. We observe substantial increases in credit scores within six months of forbearance. This credit score improvement is followed by increases in credit limits and new credit cards that allowed distressed borrowers to take on 12.3% more credit card debt relative to borrowers whose student loans were not in forbearance. Credit card borrowing is increasing and is being supplied mainly by banks, through both new and existing cards. Borrowers in forbearance also accumulate 4.6% more in auto loans and significantly less total mortgage debt (driven by new mortgages). Auto loans are primarily driven by new auto loans, with non-banks serving as the most significant suppliers of new auto debt. As credit card and auto borrowing continue to increase, distressed borrowers in forbearance are beginning to fall behind on their nonstudent debt payments at higher rates, exposing lenders to losses. Moreover, after 3 years of forbearance, distressed federal student loan borrowers’ student loan balances are 12.1% higher than distressed borrowers whose student loans are not in forbearance. In the absence of policy interventions, our results suggest that the extended breathing room that the program allowed could accelerate post-forbearance financial distress.

Essay 5: The Dark Side of Entrepreneurship

We document the long-term negative consequences of entrepreneurship on entrepreneurs' personal credit. After starting a business, entrepreneurs significantly increase their personal debt and experience an 18.93% increase in default rates and a 38.10% increase in personal bankruptcy filings compared to observably similar non-entrepreneurs. This effect is long-term, with defaults and bankruptcies staying high even five years after the business start. Lower entry barriers to entrepreneurship through business-friendly state policies are associated with the entry of worse entrepreneurs and higher personal costs for entrepreneurs. The increase in personal borrowing, particularly high-cost non-mortgage borrowing is associated with higher personal costs for entrepreneurs. Our results suggest the costs of entrepreneurship may outweigh the benefits of increased income demonstrated in the prior literature.