Bailout and Conglomeration

Author/Editor:

Se-Jik Kim

Publication Date:

August 1, 1999

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 99/108

English

Publication Date:

August 1, 1999

ISBN/ISSN:

9781451853087/1018-5941

Stock No:

WPIEA1081999

Format:

Paper

Pages:

29

Please address any questions about this title to publications@imf.org