Information spillover of bailouts

This paper investigates the information spillover effect of government bailouts. Analyzing money market funds’ dynamic enrollment status in the U.S. Treasury Temporary Guarantee Program in 2008, this paper finds that enrolled funds had overall positive fund flows, implying that the stability effect...

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Bibliographic Details
Published in:	Journal of financial intermediation Vol. 43; p. 100807
Main Author:	Kim, Hugh Hoikwang
Format:	Journal Article
Language:	English
Published:	Elsevier Inc 01-07-2020
Subjects:	Bailouts Information spillover Money market funds Money market funds G32 G01 Bailouts Information spillover G14 G28
Online Access:	Get full text
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Summary:	This paper investigates the information spillover effect of government bailouts. Analyzing money market funds’ dynamic enrollment status in the U.S. Treasury Temporary Guarantee Program in 2008, this paper finds that enrolled funds had overall positive fund flows, implying that the stability effect of bailouts outweighed the negative stigma effect. However, the already-enrolled funds experienced a relative reduction in fund flows after investors learned their funds had enrolled earlier than other peer funds (i.e., stigma effect). I address the endogeneity issue of funds’ enrollment status based on an instrumental variable approach. Overall, results show that investors extract useful information about financial institutions’ underlying stability from their demand for bailouts.
ISSN:	1042-9573 1096-0473
DOI:	10.1016/j.jfi.2018.12.001