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Ending "Too Big To Fail": Government Promises versus Investor

Ending "Too Big To Fail": Government Promises versus Investor

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This paper gives an analysis of the 1997–1999 crisis in the Republic of Korea. The analysis presents that despite a “no bailout” policy, large Korean corporate groups could still issue bonds at prices implying very low expected default risk.
This paper gives an analysis of the 1997–1999 crisis in the Republic of Korea. The analysis presents that despite a “no bailout” policy, large Korean corporate groups could still issue bonds at prices implying very low expected default risk.

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Published by: Asian Development Bank on Oct 15, 2012
Copyright:Attribution Non-commercial

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Ending “Too Big To Fail”:Government Promises versus Investor Perceptions
 Todd A. Gormley, Simon Johnson,and Changyong RheeNo. 314 | October 2012
 ADB Economics Working Paper Series
 
 
ADB Economics Working Paper Series
Ending “Too Big To Fail”:Government Promises versus Investor Perceptions
 Todd A. Gormley, Simon Johnson,and Changyong RheeNo. 314 October 2012
 
 Todd A. Gormley is Assistant Professor of Finance atthe Wharton School, University of Pennsylvania.Simon Johnson is the Ronald A. Kurtz Professor of Entrepreneurship at the Sloan School of Management,MIT and a Senior Fellow at the Peterson Institute forInternational Economics, Washington, DC.Changyong Rhee is Chief Economist, Economics andResearch Department, Asian Development Bank.We are grateful to Bruno Biais, Olivier Blanchard,Hülya Eraslan, Mike Faulkender, Radha Gopalan,Marco Pagano, Ernst-Ludwig von Thadden, Vikrant Vig,and participants at the CEPR European SummerSymposium in Financial Markets, the Olin BusinessSchool –Washington University in St. Louis Financeluncheon, MIT Development & Finance lunches, andthe World Bank Finance Research Group Seminar fortheir many useful comments. All remaining errors andomissions are our own. This paper has been previouslypublished as NBER Working Paper 17518.
 
 Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.org© 2012 by Asian Development BankOctober 2012ISSN 1655-5252Publication Stock No. WPS124994The views expressed in this paper are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for anyconsequence of their use.By making any designation of or reference to a particular territory or geographic area, or by using the term “country”in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.Note: In this publication, “$” refers to US dollars.
The ADB Economics Working Paper Series is a forum for stimulating discussion and elicitingfeedback on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals withkey economic and development problems, particularly those facing the Asia and Pacific region;as well as conceptual, analytical, or methodological issues relating to project/programeconomic analysis, and statistical data and measurement. The series aims to enhance theknowledge on Asia’s development and policy challenges; strengthen analytical rigor and qualityof ADB’s country partnership strategies, and its subregional and country operations; andimprove the quality and availability of statistical data and development indicators for monitoringdevelopment effectiveness.The ADB Economics Working Paper Series is a quick-disseminating, informal publicationwhose titles could subsequently be revised for publication as articles in professional journals or chapters in books. The series is maintained by the Economics and Research Department.
Printed on recycled paper 

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