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Using an unexpected government regulation that restricted the ability of microfinance institutions to recover loans in one Indian state, I examine whether this intervention affected bank loan performance. The bank loan delinquency rate significantly increased as a result. In response, the ex post bank credit supply declined by more than half. For identification, I compare loans from branches located in regions subject to this intervention with loans from nearby branches of the same bank located in regions not subject to the intervention. I conclude that political interventions in credit markets could have significant spillover effects.

Using an unexpected government regulation that restricted the ability of micro-finance institutions to recover loans in one Indian state, we examine whether this intervention impacted bank loan performance. The bank loan delinquency rate increased significantly as a result. In response, the ex-post bank credit supply declined by more than half. For identification, we compare loans from branches located in regions subject to this intervention with loans from nearby branches of the same bank located in regions not subject to the intervention. We conclude that political interventions in credit markets could have significant spillover effects.

We investigate the implementation of a government of India mandate that requires firms to spend at least 2% of their profits on corporate social responsibility (CSR). We find that mandated firms that voluntarily engaged in CSR before the mandate reduce their CSR spending significantly after the mandate. The erstwhile voluntary CSR spenders increase advertising expenditure plausibly to offset the lost signaling value of voluntary CSR. The 2% mandate negatively impacts valuations and operating performance. Our results show that regulatory intervention in CSR diminishes its signaling value and leads to a reduction in voluntary CSR spending

Using actual voting records of simultaneous elections held for federal and regional assemblies - where same political parties contest against each other in both type of elections - we identify the swing voters in an electoral constituency. We compare the Parliamentary performance of elected representatives who enjoy high level of support among swing voters and those who enjoy low level of support among such voters. We measure performance of an elected representative based on her level of activity in Parliament. Specifically, we use attendance, number of questions asked, number of debates participated in and number of private member bills introduced as metrics for measuring performance. We find that representatives who enjoy high level of support among swing voters outperform others significantly in terms of all four parameters that we examine. The above differences are not explained by differences in observable candidate characteristics. We also find that reelection chances are more sensitive to performance in high swing constituencies. The above findings show that the presence of swing voters enhances the effectiveness of democratic institutions by significantly increasing activity level of such institutions.

We investigate the impact of a large scale debt waiver program for small agricultural borrowers in India on the short term and long term consumption levels of the beneficiaries. We obtain consumption data from three national level surveys conducted before and after the waiver by a federal statistical agency. We find that even a 100% debt waiver does not lead to increase in consumption expenditure. In fact, in the short run, beneficiary households experience a 13.6% decline in overall consumption, which includes a sharp decline in spending on essentials such as food, clothing and education. Monthly consumption expenditure of the beneficiary households remains subdued even after 4 years from the waiver announcement date. In our theoretical framework, we attribute this negative shock to the collapse of the informal bailout mechanism, which was developed by the loan officers in order to avoid defaults. This breakdown is a result of increased moral hazard, which in turn increases expected default rates and hence makes such bailouts costly from the point of view of a loan officer. This leads to increased credit constraints and hence the waiver beneficiaries are left with fewer resources to invest and consume. We point out a significant unintended consequence of a political intervention in debt contracts.

While persistence of political dynasties in a democracy has received attention, the performance of dynasts remains unstudied. using a regression discontinuity (RD) framework, we compare dynastic representatives, who defeat non-dynastic candidates by a close margin with non-dynastic representatives, who defeat dynasts by a similar margin. We devise a set of performance measures, which include aggregate outcomes as well as measures based on individual initiative. We find that dynasts under-perform in terms of economic growth, crime, utilization of development funds and parliamentary performance and do not outperform in terms of any other criteria. Our findings show that the persistence of dynasties imposes significant economic and political costs.

Using a model as well as extensive empirical tests, the present paper investigates the effects of a large-scale debt waiver program on the post-waiver debt repayment behavior of borrowers in a typical rural credit market in an emerging economy. In this market the farmers borrow from banks at a subsidized rate and from private moneylenders at a substantially higher rate, debt contract enforcement is imperfect, and political interventions in the credit market in the form of waiver of overdue debt can happen even in normal states of the economy. Our model includes all classes of borrowers: those who receive full debt relief, those who receive partial debt relief, and those who do not benefit at all from the program as they do not have overdue loans. The effects are negative for all groups. In the post-waiver period, all borrowers, behaving strategically, default as well as take longer to repay their loans than in the pre-waiver period, causing ex-post inefficiency in the credit market. Interestingly, the effects are most negative for the formerly good borrowers who did not default before. Expectations about similar debt relief in future coupled with extensions on loan repayment granted by bankers who find debt recovery difficult drive our results. Further, rationally anticipating adverse borrower behavior, the lending institutions ration credit, generating ex-ante inefficiency as well. Ironically, access to credit declines for poor households following unconditional debt relief. We confirm the predictions of the model with extensive tests using loan accounts data for a large sample of rural borrowers before and after a nation-wide debt relief program undertaken by the Indian government in 2008, one of the largest such programs in history.

We examine the effects of chief executive officer (CEO) turnover in banks. Incoming bank CEOs face problems of information asymmetry because banks' operations are opaque and bank risk can change dramatically in a short time. These CEOs may therefore change bank policies to manage their personal risks. Since CEO turnover is usually endogenous, we utilize a setting in which CEO turnover is based solely on retirement age and is thus exogenous to bank performance. Consistent with our thesis, incoming CEOs increase provisioning for future delinquencies and shrink lending. Bank stock prices decline following these changes. Politically motivated lending or ever-greening cannot explain our results.

Using actual voting records of simultaneous elections held for Indian federal and regional assemblies-where same political parties contest against each other in both type of elections we identify non-committed voters. These are split ticket voters who vote for different parties in two different but simultaneous election. We find that the representatives supported by such voters outperform significantly with respect to both constituency level outcomes as well as measures based on individual effort. Having controlled for the impact of observable factors, we follow Imbens (2003); Harada (2012) and conduct generalized sensitivity analysis in order to account for the influence of unobservables.

We examine the effects of CEO turnover in banks. Incoming bank CEOs face problems from information asymmetry because banks' operations are opaque and bank risk can change dramatically in a short time. Incoming bank CEOs may, therefore, change bank policies to manage their personal risks. Since CEO turnover is usually endogenous, we utilize a setting where CEO turnover is based solely on retirement age and is thus exogenous to bank performance. Consistent with our thesis, incoming CEOs increase provisioning for future delinquencies and shrink lending. Bank stock prices decline following these changes. Politically motivated lending or ever-greening cannot explain our results.

Though the monetary policy transmission and financial intermediation literatures have respectively highlighted the role of the "bank credit channel" and relationship banking, the effect of relationship banking on the transmission of monitory policy has not been investigated. In this paper, we study the impact of relationship banking on the transmission of monitory policy. Theoretically, relationship banking could ameliorate or exacerbate the effects of monetary policy shocks. Using a sample of bank dependent firms in India, we find that firms that enjoy an exclusive banking relationship are less susceptible to monetary policy shocks than firms that engage in transactional banking. The effects are symmetric across monetary policy tightening and loosening. We conjecture that reduced information asymmetry due to relationship banking blunts the impact of "firm balance sheet channel" of monitory policy transmission.

Using actual voting records of simultaneous elections held for Indian federal and regional assemblies -- where same political parties contest against each other in both type of elections -- we identify swing voters. We find that the representatives supported by swing voters outperform significantly with respect to both constituency level outcomes as well as measures based on individual effort. Having controlled for the impact of observable factors, we follow Imbens (2003); Harada (2012) and conduct generalized sensitivity analysis in order to rule out the influence of unobservable factors. We show that the swing voters strengthen the positive association between democracy and growth.

At the onset of the financial crisis, the Indian regulator allowed banks to restructure loans without downgrading and providing for them. Banks tunneled capital by increasing dividends from profits engineered using regulatory forbearance. Even after the crisis dissipated, banks remained undercapitalized, forcing the regulator to continue forbearance. Lending distortions due to undercapitalization and a banking crisis followed. The ruling elite benefited by obtaining more restructuring for firms in influential districts, increased dividends on the government's shareholding, and taxes. Thus, regulatory forbearance created a vicious cycle where exogenous shocks made otherwise healthy banks undercapitalized leading to its extension even after economic recovery.

Using establishment-level data, we examine the impact of the Indian government's employment guarantee program on labor and firm behavior. We exploit the staggered implementation of the program for identification and find that the program led to a 10% reduction in the permanent workforce in firms. Firms responded to the adverse labor-supply shock by resorting to increased mechanization. This significantly increased the firms' cost of production, leading to a decline in net profits and productivity. These effects manifested primarily in firms paying low wages, firms having low labor productivity and greater sales volatility, and firms located in states with pro-employer labor regulations.

Although court judgments on economic issues are frequent, their economic impact remains understudied. Unlike institutional reforms and laws studied extensively by law and finance literature, they are not publicly debated, not passed by elected legislators, and do not always take full economic implications into account. Studying an unexpected verdict of the Supreme Court of India that retrospectively cancelled allocation of coal blocks to firms, we find evidence of contagion through banks associated with affected firms. Such banks reduce lending to their borrowers who, subsequently, contract operations and investments, and default more. Night lights activity suggests broad-based economic slowdown after the judgment.