Abstract

http://ssrn.com/abstract=1961656
 
 

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The End of Market Discipline? Investor Expectations of Implicit Government Guarantees


Viral V. Acharya


New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Deniz Anginer


Virginia Tech Pamplin Business School; World Bank - Financial and Private Sector Development

A. Joseph Warburton


Syracuse University - College of Law; Syracuse University - Whitman School of Management

March 1, 2015


Abstract:     
Using bonds traded in the U.S. between 1990 and 2012, we find that bond credit spreads are sensitive to risk for most financial institutions, but not for the largest institutions. This “too big to fail” relationship between firm size and risk-sensitivity of bond spreads is not seen in non-financial sectors. We confirm the robustness of our results by employing different measures of risk, controlling for bond liquidity, conducting an event study around shocks to investor expectations of government guarantees, examining explicitly and implicitly guaranteed bonds of the same firm, and using agency ratings of government support for financial institutions

Number of Pages in PDF File: 60

Keywords: Too big to fail, financial crisis, Dodd-Frank, bailout, implicit guarantee, moral hazard, systemic risk

JEL Classification: G21, G24, G28


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Date posted: November 19, 2011 ; Last revised: April 3, 2015

Suggested Citation

Acharya, Viral V. and Anginer, Deniz and Warburton, A. Joseph, The End of Market Discipline? Investor Expectations of Implicit Government Guarantees (March 1, 2015). Available at SSRN: http://ssrn.com/abstract=1961656 or http://dx.doi.org/10.2139/ssrn.1961656

Contact Information

Viral V. Acharya
New York University - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Deniz Anginer (Contact Author)
Virginia Tech Pamplin Business School ( email )
1818 H Street, NW
Washington, DC 20433
United States
World Bank - Financial and Private Sector Development ( email )
United States
A. Joseph Warburton
Syracuse University - College of Law ( email )
Syracuse, NY 13244-1030
United States
Syracuse University - Whitman School of Management ( email )
Syracuse, NY
United States
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