Advanced Search
MyIDEAS: Login to save this paper or follow this series

Financial Sector Returns and Creditor Moral Hazard: Evidence from Indonesia, Korea, and Thailand

Contents:

Author Info

  • Jian Tong

    ()

  • Chenggang Xu

    ()

Registered author(s):

    Abstract

    This paper introduces a framework of investor behavior in which investors form their expectations regarding the credibility of a prospective IMF program in reforming the financial sector characterized by domestic implicit guarantees. We examine the changes in financial sector returns in response to IMF-related news such as announcements of program negotiations and approval to infer investor perception regarding the Fund support associated with the program. We test the implications of our framework based on the East Asian crisis of the late 1990s. Using daily financial sector returns from Indonesia, Korea, and Thailand, we find that news of program negotiations and approval increases financial sector returns in Indonesia and Korea. The findings are consistent with investor perception that negotiated IMF programs are non-credible due to expected continuation of domestic implicit guarantees during the future Fund

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp687.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-687.

    as in new window
    Length: 26 pages
    Date of creation: 01 May 2004
    Date of revision:
    Handle: RePEc:wdi:papers:2004-687

    Contact details of provider:
    Postal: 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109
    Phone: 734 763-5020
    Fax: 734 763 5850
    Email:
    Web page: http://www.wdi.umich.edu
    More information through EDIRC

    Related research

    Keywords: Moral Hazard; the IMF; Asian crisis; Financial markets;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Leslie Teo & Charles Enoch & Carl-Johan Lindgren & Tomás J. T. Baliño & Anne Marie Gulde & Marc Quintyn, 2000. "Financial Sector Crisis and Restructuring," IMF Occasional Papers 188, International Monetary Fund.
    2. Ali M. Kutan & Ayse Y. Evrensel, 2004. "Creditor Moral Hazard in Equity Markets: A Theoretical Framework and Evidence from Indonesia and Korea," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 2004-659, William Davidson Institute at the University of Michigan.
    3. Mishkin, Frederic S, 1992. "Anatomy of a Financial Crisis," Journal of Evolutionary Economics, Springer, Springer, vol. 2(2), pages 115-30, August.
    4. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 473-500, June.
    5. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, Elsevier, vol. 37(2-3), pages 613-622, April.
    6. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
    7. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 11(3), pages 311-25, August.
    8. Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, Elsevier, vol. 51(1), pages 79-113, June.
    9. Choong Yong Ahn, 2001. "Financial and Corporate Sector Restructuring in South Korea: Accomplishments and Unfinished Agenda," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 52(4), pages 452-470.
    10. Sarno, Lucio & Taylor, Mark P., 1999. "Moral hazard, asset price bubbles, capital flows, and the East Asian crisis:: the first tests," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(4), pages 637-657, August.
    11. Przeworski, Adam & Vreeland, James Raymond, 2000. "The effect of IMF programs on economic growth," Journal of Development Economics, Elsevier, Elsevier, vol. 62(2), pages 385-421, August.
    12. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, Elsevier, vol. 11(3), pages 305-373, October.
    13. Alba, Pedro & Claessens, Stijn & Djankov, Simeon, 1998. "Thailand's corporate financing and governance structures," Policy Research Working Paper Series 2003, The World Bank.
    14. Eric Friedman & Simon Johnson & Peter Boone & Alasdair Breach, 1999. "Corporate Governance in the Asian Financial Crisis," Departmental Working Papers, Rutgers University, Department of Economics 199920, Rutgers University, Department of Economics.
    15. Maurice Obstfeld, 1995. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
    16. Lau, Sie Ting & McInish, Thomas H., 2003. "IMF bailouts, contagion effects, and bank security returns," International Review of Financial Analysis, Elsevier, Elsevier, vol. 12(1), pages 3-23.
    17. Bekaert, Geert & Harvey, Campbell R., 2002. "Research in emerging markets finance: looking to the future," Emerging Markets Review, Elsevier, Elsevier, vol. 3(4), pages 429-448, December.
    18. Alba, Pedro & Bhattacharya, Amar & Claessens, Stijn & Ghosh, Swati & Hernandez, Leonardo, 1998. "Volatility and contagion in a financially integrated world : lessons from East Asia's recent experience," Policy Research Working Paper Series 2008, The World Bank.
    19. J. Caprio & P. Honohan, 2000. "Restoring Banking Stability: Beyond Supervised Capital Requirements," South African Journal of Economics, Economic Society of South Africa, Economic Society of South Africa, vol. 68(1), pages 5-22, 03.
    20. Hayo, Bernd & Kutan, Ali M., 2005. "IMF-related news and emerging financial markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 24(7), pages 1126-1142, November.
    21. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, Elsevier, vol. 17(1-2), pages 1-13, August.
    22. Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
    23. Brealey, R. A. & Kaplanis, E., 2004. "The impact of IMF programs on asset values," Journal of International Money and Finance, Elsevier, Elsevier, vol. 23(2), pages 253-270, March.
    24. Ramon Moreno, 1998. "What caused East Asia's financial crisis?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue aug7.
    25. Paul Krugman, 1996. "Are Currency Crises Self-Fulfilling?," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1996, Volume 11, pages 345-407 National Bureau of Economic Research, Inc.
    26. Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The “Overborrowing Syndrome”," NBER Chapters, National Bureau of Economic Research, Inc, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
    27. Moreno, R. & Pasadilla, G. & Remolona, E., 1998. "Asia's Financial Crisis: Lessons and Policy Responses," Papers, Economisch Institut voor het Midden en Kleinbedrijf- 98-02, Economisch Institut voor het Midden en Kleinbedrijf-.
    28. Evrensel, Ayse Y., 2002. "Effectiveness of IMF-supported stabilization programs in developing countries," Journal of International Money and Finance, Elsevier, Elsevier, vol. 21(5), pages 565-587, October.
    29. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
    30. Klingebiel, Daniela & Kroszner, Randy & Laeven, Luc & van Oijen, Pieter, 2001. "Stock market responses to bank restructuring policies during the East Asian crisis," Policy Research Working Paper Series 2571, The World Bank.
    31. Hahm, Joon-Ho & Mishkin, Frederic S., 2000. "The Korean financial crisis: an asymmetric information perspective," Emerging Markets Review, Elsevier, Elsevier, vol. 1(1), pages 21-52, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2004-687. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laurie Gendron).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.