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The Impact of Government Intervention in Banks on Corporate Borrowers’ Stock Returns

Published online by Cambridge University Press:  30 October 2013

Lars Norden ,
Peter Roosenboom  and
Teng Wang
Lars Norden
Affiliation:
lnorden@rsm.nl, Rotterdam School of Management, Erasmus University, PO Box 1738, Rotterdam, 3000 DR, the Netherlands.
Peter Roosenboom
Affiliation:
proosenboom@rsm.nl, Rotterdam School of Management, Erasmus University, PO Box 1738, Rotterdam, 3000 DR, the Netherlands.
Teng Wang*
Affiliation:
tengwang@rsm.nl, Rotterdam School of Management, Erasmus University, PO Box 1738, Rotterdam, 3000 DR, the Netherlands.
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Abstract

We investigate whether and how government interventions in the U.S. banking sector influence the stock market performance of corporate borrowers during the financial crisis of 2007–2009. We measure firms’ exposures to government interventions with an intervention score that is based on combined information on the firms’ structure of bank relationships and their banks’ participation in government capital support programs. We find that government capital infusions in banks have a significantly positive impact on borrowing firms’ stock returns. The effect is more pronounced for riskier and bank-dependent firms and for those that borrow from banks that are less capitalized and smaller.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 5 , October 2013 , pp. 1635 - 1662
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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