Information Spillover of Bailouts

50 Pages Posted: 18 Aug 2013 Last revised: 27 Dec 2018

See all articles by Hugh Hoikwang Kim

Hugh Hoikwang Kim

University of South Carolina, Darla Moore School of Business

Date Written: December 25, 2018

Abstract

This paper investigates the information spillover effect of government bailouts. Analyzing money market funds’ dynamic enrollment status in the U.S. Treasury Temporary Guarantee Program in 2008, this paper finds that enrolled funds had overall positive fund flows, implying that the stability effect of bailouts outweighed the negative stigma effect. However, the already-enrolled funds experienced a relative reduction in fund flows after investors learned their funds had enrolled earlier than other peer funds (i.e., stigma effect). I address the endogeneity issue of funds’ enrollment status based on an instrumental variable approach. Overall, results show that investors extract useful information about financial institutions’ underlying stability from their demand for bailouts.

Keywords: information spillover, bailouts, money market funds

JEL Classification: G01, G14, G28, G32

Suggested Citation

Kim, Hugh Hoikwang, Information Spillover of Bailouts (December 25, 2018). Journal of Financial Intermediation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2311542 or http://dx.doi.org/10.2139/ssrn.2311542

Hugh Hoikwang Kim (Contact Author)

University of South Carolina, Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

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