On the Real Effects of Bank Bailouts: Micro-Evidence from Japan

52 Pages Posted: 20 Apr 2009 Last revised: 9 Nov 2018

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: September 21, 2011

Abstract

Exploiting the Japanese banking crisis of the 1990s as a laboratory, we investigate the effects of bank bailouts on the supply of credit and on the valuations and the real performance of banks’ clients. Consistent with recent theories, our findings indicate that the size of the capital injections relative to the banks’ initial financial conditions is crucial for the success of bank bailouts. Capital injections that are sufficiently large to reestablish bank capital requirements increase the supply of credit and spur investment. In contrast, not only do capital injections that are too small fail to increase the supply of credit, but they also encourage the evergreening of non-performing loans and favor investment by unviable “zombie” firms.

Keywords: Recapitalization, merger, banking crisis

JEL Classification: G21, G34

Suggested Citation

Giannetti, Mariassunta and Simonov, Andrei, On the Real Effects of Bank Bailouts: Micro-Evidence from Japan (September 21, 2011). EFA 2009 Bergen Meetings Paper; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 260/2009; FEEM Working Paper No. 103.2009. Available at SSRN: https://ssrn.com/abstract=1391624 or http://dx.doi.org/10.2139/ssrn.1391624

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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SE-113 83 Stockholm
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+46 8 736 9607 (Phone)
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HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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