Unintended Consequences of Government Bailouts: Evidence from Bank-Dependent Borrowers of Large Banks

51 Pages Posted: 1 Nov 2017

See all articles by Yupeng Lin

Yupeng Lin

National University of Singapore

Xin Liu

Research School of Finance, Actuarial Studies & Applied Statistics, CBE, Australian National University

Anand Srinivasan

CAFRAL, Reserve Bank of India; National University of Singapore - Department of Finance

Date Written: September 1, 2017

Abstract

Using the Troubled Asset Relief Program (TARP) as a laboratory, this paper examines the impacts of bank bailouts on bank-dependent clients. We find that large TARP recipient banks reduce credit supply to dependent borrowers in the post-TARP period. Such effect is more pronounced when recipient banks hoard more liquidity ex-post. We further show that a large fraction of credit supply reduction is due to regulatory uncertainty. This negative shock via credit channel causes dependent borrowers to become more constrained financially. Ex-ante analysis also reveals a significant valuation loss for these borrowers around the announcements of their main banks’ TARP approvals.

Keywords: Financial Crisis, Bailout, Investment, Event Study, Lending

JEL Classification: E51, G28, G21

Suggested Citation

Lin, Yupeng and Liu, Xin and Srinivasan, Anand, Unintended Consequences of Government Bailouts: Evidence from Bank-Dependent Borrowers of Large Banks (September 1, 2017). Available at SSRN: https://ssrn.com/abstract=3062484 or http://dx.doi.org/10.2139/ssrn.3062484

Yupeng Lin (Contact Author)

National University of Singapore ( email )

15 Kent ridge drive
Singapore
Singapore

HOME PAGE: http://sites.google.com/site/scottlinyupeng/

Xin Liu

Research School of Finance, Actuarial Studies & Applied Statistics, CBE, Australian National University ( email )

Kingsley Street
acton, ACT 0200
Australia

Anand Srinivasan

CAFRAL, Reserve Bank of India ( email )

C-8, 8th Floor, Reserve Bank of India
Bandra-Kurla Complex, Bandra (East)
Mumbai, Maharashtra 400051
India

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

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