Abstract

https://ssrn.com/abstract=891258
 
 

References (22)



 
 

Citations (3)



 


 



'Too Big to Fail': Government Policy vs. Investor Perceptions


Todd A. Gormley


Washington University in St. Louis

Simon Johnson


Massachusetts Institute of Technology (MIT) - Entrepreneurship Center; National Bureau of Economic Research (NBER)

Changyong Rhee


Asian Development Bank

December 23, 2009


Abstract:     
Can a “no bailout” government policy eliminate investors’ perception that some firms are “too big to fail”? We analyze this question using evidence from the Korean crisis of 1997-98. Despite a “no bailout” policy of Korean government following the crisis, we find that the largest Korean corporate groups (chaebol) were able to retain access to external finance by borrowing directly from households through the bond market. Dubious corporate governance did not prevent firms from borrowing, and there is no evidence that default risk was priced by investors. This evidence suggests that “too big to fail” beliefs among investors are unlikely to be eliminated by government commitments to not bail out firms.

Number of Pages in PDF File: 50

Keywords: Financial Development, Institutions, Economic Crisis

JEL Classification: E44, G18, K00, N20, P16, P17


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Date posted: March 16, 2006 ; Last revised: June 30, 2011

Suggested Citation

Gormley, Todd A. and Johnson, Simon and Rhee, Changyong, 'Too Big to Fail': Government Policy vs. Investor Perceptions (December 23, 2009). Available at SSRN: https://ssrn.com/abstract=891258 or http://dx.doi.org/10.2139/ssrn.891258

Contact Information

Todd A. Gormley (Contact Author)
Washington University in St. Louis ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
(314) 935-7171 (Phone)
HOME PAGE: http://www.gormley.info
Simon Johnson
Massachusetts Institute of Technology (MIT) - Entrepreneurship Center ( email )
United States
617-253-8412 (Phone)
617-258-6855 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Changyong Rhee
Asian Development Bank ( email )
6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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