Essays on consumer finance: analysis of consumer bankruptcy and credit access

This thesis examines the implications of consumer bankruptcy and access to consumer credit on approximately 50,000 individuals using longitudinal data from a representative sample of households in Great Britain. The thesis comprises three inter-related but stand-alone empirical chapters along with the introduction and conclusion chapters.

The first empirical chapter, Chapter 2, investigates the effects of the bankruptcy benefit and adverse events on the consumer bankruptcy decision. Employing zero-inflated ordered probit (ZIOP) model, the chapter analyses whether consumers go into any bankruptcy proceedings and, if they do, their choice of the bankruptcy type, either the discharge of debts (fresh start) or the reorganisation of debts (income gleaning). The findings are that the bankruptcy benefit and becoming unemployed are positively related to the bankruptcy decision regardless of the bankruptcy type. However, the effects of the other adverse events differ across bankruptcy types. Individuals who experience the onset of health problems are more likely to choose the income gleaning, whereas individuals who get divorced or separated are more likely to choose the fresh start.

The second empirical chapter, Chapter 3, examines the effects of the consumer bankruptcy on the access to credit after bankruptcy. Using difference in differences (DID) estimation, the chapter analyses the credit availability to consumer bankruptcy filers and whether or not they are excluded from credit markets for both the short term (1 year) and the long term (3 years). It also analyses the existence of financial exclusion, if any, according to the choice of the bankruptcy type. The findings suggest that bankrupt consumers are excluded from the credit markets for both the short and the long term. However, when the analysis is done based on the bankruptcy types, the results show that the exclusion of fresh starters from the credit markets is dramatic, swift but short lived, while the exclusion of the income gleaners is gradual, slow but lasts longer.

The third empirical chapter, Chapter 4, analyses the role of entrepreneurial activity on the access to consumer credit markets. Employing propensity score matching, it analyses the credit availability to the entrepreneurs and non-entrepreneurs and tests whether or not the entrepreneurs are excluded from the consumer credit markets. The findings show that entrepreneurs are excluded from the credit markets when they are compared to their non-entrepreneur counterparts. A typical entrepreneur is likely to receive approximately £500 less consumer credit than a typical non-entrepreneur with similar characteristics.