Expected Government Support of Banks and Market Discipline by Shareholders
31 Pages Posted: 23 Jan 2016
Date Written: January 21, 2016
The empirical results, from a sample of about 250 banks worldwide, indicate that the expected government support of banks does not weaken market discipline by shareholders. Specifically, shareholders are not willing to pay more for banks with higher expected support. On the contrary, they are willing to pay less for the riskier banks, despite the expected support. The results also indicate that market discipline strengthened after the eruption of the global financial crisis in 2008.
Keywords: Banks, Credit ratings, Government support, Market discipline, Shareholders
JEL Classification: G21, G24, G28
Suggested Citation: Suggested Citation