WEALTH EFFECT OF PUBLIC FUND INJECTIONS TO AILING BANKS: DO DEFERRED TAX ASSETS AND AUDITING FIRMS MATTER?*

Nobuyoshi Yamori and Ayami Kobayashi

The Japanese Economic Review, 2007, vol. 58, issue 4, 466-483

Abstract: This paper examines the wealth effect on other banks by the public fund injection into Resona Bank. This paper finds that the injection initially conveyed the auditing firms' strict stance towards deferred tax assets. More importantly, the procedure that the government employed was regarded by market participants as a too‐big‐to‐fail policy. Therefore, although the Resona injection was effective in obviating a financial crisis, the policy was inevitably accompanied with the moral hazard problem.

Date: 2007
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