Bailout and Conglomeration

August 1, 1999

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Se-Jik Kim. Bailout and Conglomeration, (USA: International Monetary Fund, 1999) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper suggests that when firms differ stochastically in their productivity, a bank may find it optimal not to bail out the failed nonconglomerate firms at all, but to bail out conglomerates fully. Expectation of such bailout policy may encourage risk-averse firms to join a conglomerate to minimize the risk of liquidation. Furthermore, in case of private information, bad firms follow good firms’ decision on conglomeration to hide their type. Finally, the paper discusses the impact of conglomeration on the debt-equity ratio and the expansion of existing conglomerates through mergers and acquisitions.

Subject: Bank bailouts, Banking, Productivity, Self-employment, Stocks

Keywords: Debt-equity ratio, Total output, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/108
Stock No:

WPIEA1081999
ISBN:

9781451853087
ISSN:

1018-5941

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