Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/109439
Authors: 
Gormley, Todd A.
Johnson, Simon
Rhee, Changyong
Year of Publication: 
2012
Series/Report no.: 
ADB Economics Working Paper Series 314
Abstract: 
Can a government credibly promise not to bailout firms whose failure would have major negative systemic consequences? Our analysis of the Republic of Korea's 1997–1999 crisis, suggests an answer: No. Despite a general "no bailout" policy during the crisis, the largest Korean corporate groups (chaebol)―facing severe financial and governance problems―could still borrow heavily from households through issuing bonds at prices implying very low expected default risk. The evidence suggests "too big to fail" beliefs were not eliminated by government promises, presumably because investors believed that this policy was not time consistent. Subsequent government handling of potential and actual defaults by Daewoo and Hyundai confirmed the market view that creditors would be protected.
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/igo
Document Type: 
Working Paper

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