EconPapers    
Economics at your fingertips  
 

Ending "Too Big To Fail": Government Promises Versus Investor Perceptions

Todd A. Gormley, Simon Johnson and Changyong Rhee

Review of Finance, 2015, vol. 19, issue 2, 491-518

Abstract: Can a government credibly promise not to bailout firms whose failure would have major negative systemic consequences? Our analysis of Korea’s 1997–98 crisis suggests an answer: No. Despite a general "no bailout" policy during the crisis, the largest Korean corporate groups—facing severe financial and governance problems—could still borrow heavily from households by issuing bonds at prices implying very low expected default risk. The evidence suggests "too big to fail" beliefs were not eliminated by government promises because investors believed that this policy was not time consistent. Subsequent bailouts confirmed the market view that creditors would be protected.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://hdl.handle.net/10.1093/rof/rfu015 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Ending "Too Big To Fail": Government Promises versus Investor Perceptions (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:revfin:v:19:y:2015:i:2:p:491-518.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Review of Finance is currently edited by Marcin Kacperczyk

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2025-03-19
Handle: RePEc:oup:revfin:v:19:y:2015:i:2:p:491-518.