Information Spillover of Bailouts
44 Pages Posted: 18 Aug 2013 Last revised: 1 Feb 2018
Date Written: January 1, 2018
This paper examines an information spillover effect of financial institutions’ enrollment in a government bailout program. Analyzing money market funds’ dynamic enrollment status in the U.S. Treasury Temporary Guarantee Program in 2008, this paper finds that funds’ disclosure of enrollment in the bailout program lead to significantly reduced outflows from other non-enrolled funds. Enrolled funds had positive inflows due to stability provided by the government, dominating the negative spillover effect. I address the endogeneity issue of funds’ enrollment status based on survival analysis and an instrumental variable approach. This finding is consistent with the information spillover effect of bailouts; investors extract useful information about financial institution’s underlying stability from their demand for government bailouts.
Keywords: information spillover, bailouts, money market funds
JEL Classification: G01, G14, G28, G32
Suggested Citation: Suggested Citation