Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88733
Authors: 
Hett, Florian
Schmidt, Alexander
Year of Publication: 
2013
Series/Report no.: 
SAFE Working Paper Series 36
Abstract: 
We show that market discipline, defined as the extent to which firm specific risk characteristics are re ected in market prices, eroded during the recent financial crisis in 2008. We design a novel test of changes in market discipline based on the relation between firm specific risk characteristics and debt-to-equity hedge ratios. We find that market discipline already weakened after the rescue of Bear Stearns before disappearing almost entirely after the failure of Lehman Brothers. The effect is stronger for investment banks and large financial institutions, while there is no comparable effect for non-financial firms.
Subjects: 
Bailout
Implicit Guarantees
Too-Big-To-Fail
Market Discipline
JEL: 
G14
G21
G28
H81
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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