Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports

We study the financial and labor market impacts of bad credit reports. Using difference-in-differences variation from the staggered removal of bankruptcy flags, we show that bankruptcy flag removal leads to economically large increases in credit limits and borrowing. Using administrative tax records...

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Bibliographic Details
Published in:The Journal of finance (New York) 2020-10, Vol.75 (5), p.2377-2419
Main Authors: DOBBIE, WILL, GOLDSMITH-PINKHAM, PAUL, MAHONEY, NEALE, SONG, JAE
Format: Article
Language:English
Subjects:
Archives & records
Bankruptcy
Bond markets
Business schools
Credit
Credit ratings
Credit reports
Earnings
Employment
Financial disclosure
Financial markets
Financial statements
Job performance
Labor market
Personal bankruptcy
Taxation
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Summary:We study the financial and labor market impacts of bad credit reports. Using difference-in-differences variation from the staggered removal of bankruptcy flags, we show that bankruptcy flag removal leads to economically large increases in credit limits and borrowing. Using administrative tax records linked to personal bankruptcy records, we estimate economically small effects of flag removal on employment and earnings outcomes. We rationalize these contrasting results by showing that, conditional on basic observables, "hidden" bankruptcy flags are strongly correlated with adverse credit market outcomes but have no predictive power for measures of job performance.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.12954