Exploiting the Japanese banking crisis of the 1990s as a laboratory,
we investigate the effects of bank bailouts on the supply of credit and
the performance of banksâ€™ clients. Our findings indicate that the size
of capital injections relative to the initial financial condition of banks
is crucial for the success of bank bailouts. Capital injections that are
large enough to reestablish bank capital requirements increase the
supply of credit and spur investment. In contrast, not only do capital
injections that are too small fail to increase the supply of credit,
but they also encourage the evergreening of nonperforming loans.
(JEL E44, G21, G28, G32, G34)
Giannetti, Mariassunta, and Andrei Simonov.
"On the Real Effects of Bank Bailouts: Micro Evidence from Japan."
American Economic Journal: Macroeconomics,
Financial Markets and the Macroeconomy
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance