Ending “Too Big To Fail”: Government Promises versus Investor Perceptions
Gormley, Todd A.; Johnson, Simon; Rhee, Changyong | October 2012
Abstract
Can a government credibly promise not to bailout firms whose failure would
have major negative systemic consequences? Our analysis of the Republic of
Korea’s 1997–1999 crisis, suggests an answer: No. Despite a general “no
bailout” policy during the crisis, the largest Korean corporate groups
(chaebol)―facing severe financial and governance problems―could still borrow
heavily from households through issuing bonds at prices implying very low
expected default risk. The evidence suggests “too big to fail” beliefs were not
eliminated by government promises, presumably because investors believed
that this policy was not time consistent. Subsequent government handling of
potential and actual defaults by Daewoo and Hyundai confirmed the market view
that creditors would be protected.
Citation
Gormley, Todd A.; Johnson, Simon; Rhee, Changyong. 2012. Ending “Too Big To Fail”: Government Promises versus Investor Perceptions. © Asian Development Bank. http://hdl.handle.net/11540/1272. License: CC BY 3.0 IGO.ISSN
1655-5252
Keywords
Development In East Asia
Development Planning
Development Research
Technology Development
Aid And Development
Comprehensive Development Framework
Development Cooperation
Development Management
Development Planning
Development Strategies
Development strategy
Development models
Economic development
New technology
Rural planning
Aid coordination
Industrial projects
Infrastructure projects
Natural resources policy
Educational development
Economic development projects
Economic forecasting
Economic development projects
Municipal government
Technology transfer
Exchanges of patents and technical information
Technical education
Technology tCommunication in rural development
Communication in community development
Economic development projects
Development banks
Economic forecasting
Environmental auditing
Cumulative effects assessment
Human rights and globalizationransfer
Technocracy
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Citable URI
http://hdl.handle.net/11540/1272Metadata
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