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Pricing the net benefits of a public loan guarantee scheme in a developing market

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  • Topaloğlu-Bozkurt, Ayça
  • Tanyeri-Günsür, Başak

Abstract

Turkish credit markets experienced a liquidity crunch following the Brexit referendum in June, the attempted coup in July, and the US election in November of 2016. The government announced a 12.5-fold increase in the Treasury support for the Credit Guarantee Fund to alleviate the credit squeeze. We investigate whether investor reactions to the announcement of the increase in Treasury support in KGF are in line with the stated aim of policymakers. Firms listed on Borsa İstanbul averaged 5.72 percent cumulative abnormal returns (CARs) in the 9-day window around the announcement. Investors anticipated the benefits from public guarantees would outweigh the costs. The positive and significant CARs suggest that the information released in the announcement, in line with the program aims, positively affected investor expectations.

Suggested Citation

  • Topaloğlu-Bozkurt, Ayça & Tanyeri-Günsür, Başak, 2023. "Pricing the net benefits of a public loan guarantee scheme in a developing market," Economics Letters, Elsevier, vol. 232(C).
    • Handle: RePEc:eee:ecolet:v:232:y:2023:i:c:s0165176523003786
    DOI: 10.1016/j.econlet.2023.111353
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    More about this item

    Keywords

    Public guarantee schemes; Credit guarantee funds; Developing markets; Event study;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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