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Requiem for Market Discipline and the Specter of TBTF in Japanese Banking

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Author Info

  • Adrian Pop

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)

  • Diana Pop

    (GRANEM - Department of Law, Economics, and Management - Université d'Angers)

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    Abstract

    This study examines the reaction of private market participants to the enhancement of the “Too-Big-To-Fail” (TBTF) doctrine in the Japanese banking sector. The event justifying the use of the “TBTF” label occurred on May 17th , 2003, when the Japanese government decided to bailout Resona Holdings, the 5th largest financial group in the country. By using a sample of all Japanese listed banks and the standard event study methodology, we document significant and positive wealth effects in the stock market accruing to large banks and negative (though non-significant) effects accruing to smaller banks. Besides the effect on bank equity values, we also document a significant abnormal volume of trading on days following the bailout announcement date for the largest banks only. We extend our empirical analysis on stock prices and trading volumes by detecting an original “pure” risk effect in the Credit Default Swap (CDS) market.

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    File URL: http://hal.archives-ouvertes.fr/docs/00/41/92/35/PDF/LEMNA_WP_200904.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number hal-00419235.

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    Date of creation: 23 Sep 2009
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    Handle: RePEc:hal:wpaper:hal-00419235

    Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00419235/en/
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    Cited by:
    1. Nicolas Dumontaux & Adrian Pop, 2012. "Contagion Effects in the Aftermath of Lehman's Collapse: Measuring the Collateral Damage," Working Papers hal-00695721, HAL.
    2. Dumontaux, Nicolas & Pop, Adrian, 2013. "Understanding the market reaction to shockwaves: Evidence from the failure of Lehman Brothers," Journal of Financial Stability, Elsevier, vol. 9(3), pages 269-286.
    3. Abreu, José Filipe & Gulamhussen, Mohamed Azzim, 2013. "The stock market reaction to the public announcement of a supranational list of too-big-to-fail banks during the financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 49-72.

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