“On the Real Effects of Bank Bailouts: Micro-Evidence from Japan” by Mariassunta Giannetti
Stockholm School of Economics
Michigan State University and CEPR
Exploiting the Japanese banking crisis as a laboratory, we investigate the effects of bank bailouts on the supply of credit and on bank clients' valuations and real performance. We find that government recapitalizations increase the supply of credit and result in positive abnormal returns, especially for bank-dependent borrowers. However, our results also highlight that during periods of high uncertainty, such as systemic banking crises, the positive effects of bank bailouts on the real economy are muted by firms' desire to accumulate cash for precautionary reasons. Furthermore, the costs of government recapitalizations are increased by the bailed out banks' propensity to extend larger loans to low and high quality firms alike.