46 Pages Posted: 20 Apr 2009 Last revised: 20 Jun 2016
Date Written: September 21, 2011
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: 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; 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