Please use this identifier to cite or link to this item:
Full metadata record
DC FieldValueLanguage
dc.contributor.authorHett, Florianen_US
dc.contributor.authorSchmidt, Alexanderen_US
dc.description.abstractIn this paper we develop a methodology to test for changes in the strength of market discipline in the corporate bond market. Based on the relationship between equities and bonds of a firm, our method examines the relationship between equity implied information about default probabilities and corporate bond spreads. We interprete a structural change in this relationship as change in market discipline. We then apply this approach to study major events during the current financial crisis, in particular the rescue of Bear Stearns as well as the failure of Lehman Brothers and thereby test popular opinions about the effects of these events. Thereby we rely on the asymmetric effects of bail-outs, as they favor debt holders more than equity holders. We find that the rescue of Bear Stearns led to a significant decline in market discipline. This result is in line with the idea of the bail-out being a signal to market participants that the concept of Too-Big-To-Fail' applies to Investment Banks. Regarding the Lehman case we find that it did re-establish some lost market discipline.en_US
dc.publisher|aVerein für Socialpolitik |cFrankfurt a. M.en_US
dc.relation.ispartofseries|aBeiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Causes and Consequences of Bank Bail-Outs |xD7-V1en_US
dc.subject.keywordbond spreadsen_US
dc.subject.keywordmarket disciplineen_US
dc.subject.keywordmoral hazarden_US
dc.titleDo Bank Bail-Outs cause Moral Hazard? Evidence from the Subprime Crisisen_US
dc.typeConference Paperen_US

Files in This Item:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.