Time to buy or just buying time? The market reaction to bank rescue packages

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Michael R King;
  • Subject: banking, rescue packages, stock prices, CDS spreads, financial crisis, event study

This paper reviews the market reaction to bank rescue packages announced in six countries between October 2008 and January 2009. The study distinguishes the impact on creditors as seen in the change of CDS spreads from the impact on shareholders as seen in the movement ... View more
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    6 In terms of the wealth effects of corporate events on creditors and shareholders, Warga and Welch (1993) study leveraged buyouts, Billett, King and Mauer (2004) study mergers and spin-offs, Eberhart and Siddique (2002) study equity offerings and Maxwell and Stephens (2003) study share repurchases.

    7 Jorion and Zhang (2007) look at the contagion and competition effects of Chapter 7 and Chapter 11 bankruptcies. Jorion and Zhang (forthcoming) empirically measure credit contagion created by counterparty exposures following Chapter 11 bankruptcies. Both studies employ an event study of CDS spreads, while the latter paper also looks at stock price movements.

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