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Information spillover of bailouts

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  • Kim, Hugh Hoikwang

Abstract

This paper investigates the information spillover effect of government bailouts. Analyzing money market funds’ dynamic enrollment status in the U.S. Treasury Temporary Guarantee Program in 2008, this paper finds that enrolled funds had overall positive fund flows, implying that the stability effect of bailouts outweighed the negative stigma effect. However, the already-enrolled funds experienced a relative reduction in fund flows after investors learned their funds had enrolled earlier than other peer funds (i.e., stigma effect). I address the endogeneity issue of funds’ enrollment status based on an instrumental variable approach. Overall, results show that investors extract useful information about financial institutions’ underlying stability from their demand for bailouts.

Suggested Citation

  • Kim, Hugh Hoikwang, 2020. "Information spillover of bailouts," Journal of Financial Intermediation, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:jfinin:v:43:y:2020:i:c:s1042957319300099
    DOI: 10.1016/j.jfi.2018.12.001
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    Cited by:

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    3. Berger, Allen N. & Guedhami, Omrane & Kim, Hugh H. & Li, Xinming, 2022. "Economic policy uncertainty and bank liquidity hoarding," Journal of Financial Intermediation, Elsevier, vol. 49(C).

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