If the private signal increases the government's inclination to bailout, the government may have an incentive to lie and send the opposite message, thereby preserving market discipline.However, the firm rationally infers this strategic disclosure, and therefore, may assume excessive risk taking no matter what messages does it receive from the government.Bailout that leads to immediate market rejuvenation is welfare-dominated by an equilibrium without such market rejuvenation.Tags: Argumentative Essay About TattoosHow Write Research PaperEssay On Literacy InfluencesLiterature Review On LeadershipRomeo And Juliet Compare And Contrast EssayStrategic Management Dissertation TopicsTopmarks Problem Solving
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When the prior probability of crisis is low, the latter effect dominates.
Hence, the government takes a tougher stance, bailing out less frequently than it would without the long-term consideration.
This dissertation consists of three essays on financial economics.
In the first chapter, jointly written with Yeon-Koo Che and Chongwoo Choe, we focus on observations during the recent financial crisis that financially distressed firms may be reluctant to accept government bailouts for fear that it may signal the weakness of their balance sheets and inhibit future financing.