Bank rescues and bailout expectations: the erosion of market discipline during the financial crisis : [version august 2013]
- We show that market discipline, defined as the extent to which firm specific risk characteristics are reflected in market prices, eroded during the recent financial crisis in 2008. We design a novel test of changes in market discipline based on the relation between firm specific risk characteristics and debt-to-equity hedge ratios. We find that market discipline already weakened after the rescue of Bear Stearns before disappearing almost entirely after the failure of Lehman Brothers. The effect is stronger for investment banks and large financial institutions, while there is no comparable effect for non-financial firms.
| Author: | Florian HettGND, Alexander Schmidt |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-331634 |
| URL: | http://ssrn.com/abstract=2365686 |
| DOI: | https://doi.org/10.2139/ssrn.2365686 |
| Parent Title (German): | SAFE working paper series ; No. 36 |
| Series (Serial Number): | SAFE working paper (36) |
| Publisher: | SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2013 |
| Year of first Publication: | 2013 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2014/02/28 |
| Tag: | Bailout; Implicit Guarantees; Market Discipline; Too-Big-To-Fail |
| Issue: | version august 2013 |
| Page Number: | 45 |
| HeBIS-PPN: | 348861532 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
