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Bailout and Conglomeration

The paper suggests that when firms differ stochastically in their productivity, a bank may find it optimal not to bail out the failed nonconglomerate firms at all, but to bail out conglomerates fully. Expectation of such bailout policy may encourage risk-averse firms to join a conglomerate to minimi...

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Bibliographic Details
Main Author: Kim, Se-Jik
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1999
Series:IMF Working Papers
Subjects:
Investments: Stocks
Macroeconomics: Production
Liquidation
Pension Funds
Labor Demand
Non-bank Financial Institutions
Bankruptcy
Labour
Banking
Banks And Banking
Bank Bailouts
Micro Finance Institutions
Financial Institutions And Services: Government Policy And Regulation
Production And Operations Management
Self-employment
Depository Institutions
Firm Organization And Market Structure
Economic & Financial Crises & Disasters
Productivity
Labor
Financial Instruments
Stocks
Industrial Productivity
Institutional Investors
Macroeconomics
Self-employed
Investment & Securities
Banks
Income Economics
Crisis Management
Mortgages
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:The paper suggests that when firms differ stochastically in their productivity, a bank may find it optimal not to bail out the failed nonconglomerate firms at all, but to bail out conglomerates fully. Expectation of such bailout policy may encourage risk-averse firms to join a conglomerate to minimize the risk of liquidation. Furthermore, in case of private information, bad firms follow good firms’ decision on conglomeration to hide their type. Finally, the paper discusses the impact of conglomeration on the debt-equity ratio and the expansion of existing conglomerates through mergers and acquisitions
Physical Description:29 pages
ISBN:9781451853087

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