Government finances and bank bailouts: Evidence from European stock markets

Matias Cabrera, Gerald Dwyer and Margarita Samartín-Saénz

Journal of Empirical Finance, 2016, vol. 39, issue PB, 169-179

Abstract: Using a sample of European banks and a series of events affecting governments' finances, we conduct an event study to examine whether there is a relationship between governments' fiscal difficulties and banks' stock returns. We find a significant reaction of banks' stocks to news concerning governments' finances. Banks' stock returns fall in response to a deterioration of governments' financial situation. We find little difference in the reaction between large and small banks. The evidence points towards all banks being equally likely to be bailed out. Our data are consistent with a policy during the Eurozone sovereign-debt crisis in which “no bank is too small to save”.

Keywords: Too big to fail; Too big to save; Financial crisis; Event study; Government bailout; Sovereign-debt crisis (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 H81 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:39:y:2016:i:pb:p:169-179

DOI: 10.1016/j.jempfin.2016.06.005

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