Bailouts, the incentive to manage risk, and financial crises

• 成果类型: Article
• 署名作者: Panageas, Stavros
• 署名单位: University of Chicago; National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2009.11.008
• 发表日期: 2010
• 页码: 296-311
• 关键词: Continuous time methods; default; Implicit guarantees; risk management; Bailouts

摘要

A firm's termination leads to bankruptcy costs. This may create an incentive for outside stakeholders or the firm's debtholders to bail out the firm as bankruptcy looms. Because of this implicit guarantee, firm shareholders have an incentive to increase volatility in order to exploit the implicit protection. However, if they increase volatility too much they may induce the guarantee-extending parties to walk away. I derive the optimal risk management rule in such a framework and show that it allows high volatility choices, while net worth is high. However, risk limits tighten abruptly when the firm's net worth declines below an endogenously determined threshold. Hence, the model reproduces the qualitative features of existing risk management rules, and can account for phenomena such as flight to quality. (C) 2009 Elsevier B.V. All rights reserved.