Bailout Stigma

Yeon-Koo Che, Chongwoo Choe and Keeyoung Rhee

No 10-18, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: We develop a model of bailout stigma where accepting bailouts may signal firms' financial troubles and weaken their subsequent funding capabilities. Bailout stigma can lead to low or even no take-up of otherwise attractive bailout offers, the failure of market revival, or a government having to pay a hefty premium to support market revival. Nonetheless, the stigma has a salutary effect: by refusing to accept bailouts, firms may rehabilitate their market perceptions, thereby improving their subsequent financing. Secret bailouts may not eliminate bailout stigma, but secrecy accompanied by restrictions on early market revival removes the stigma and achieves constrained efficiency.

Keywords: Adverse selection; bailout stigma; secret bailout (search for similar items in EconPapers)
JEL-codes: D82 G01 G18 (search for similar items in EconPapers)
Pages: 85 pages
Date: 2019-06
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Related works:
Working Paper: Bailout Stigma (2023)
Working Paper: Bailout Stigma (2015)
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