Do Business Borrowers Benefit from Bank Bailouts?: The Effects of TARP on Loan Contract Terms. Issue 2 (31st July 2018)

• Record Type: Journal Article
• Authors: Berger, Allen N.; Makaew, Tanakorn; Roman, Raluca A.
• Is Part Of: Financial management. Volume 48:Issue 2(2019:Summer)
• Page Start: 575
• Page End: 639
• Publication Date: 2018-07-31
• Subjects: Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12222
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract: We investigate benefits to business borrowers from bank bailouts, specifically the Troubled Asset Relief Program (TARP). Applying difference‐in‐difference methodology to loan‐level data, we find more favorable borrower contract terms in five dimensions, spread, amount, maturity, collateral, and covenants, suggesting increased credit supply at the intensive margin by bailed‐out banks. Findings are robust to dealing with endogeneity and other issues. Riskier borrowers benefit more, consistent with moral hazard exploitation. Small and unlisted borrowers benefit less, suggesting fewer benefits for financially constrained firms. Benefits accrue to both relationship and nonrelationship borrowers. Results contribute to the research and policy debates on bank bailouts.