An Empirical Study of Corporate Bailouts from Around the World: 1987–2005

Abstract

Using a carefully hand–collected sample of 104 corporate bailouts from around the world, we empirically study corporate bailouts at the firm level. We classify corporate bailouts into different types and find some bailed–out firms recover better than others. First, firms that experience sudden declines in performance, as opposed to firms that suffer prolonged declines in performance, and firms that are only financially distressed but not economically distressed, recover better than other bailed–out firms. Second, firms that receive cash injections, especially in the form of equity as opposed to loans, recover worse than other bailed–out firms. Third, and perhaps not surprisingly, firms bailed out by the government recover worse than firms bailed out by other stakeholders. Each of these findings holds (i) in the presence of other findings in multiple regression models, (ii) when we compare bailed–out firms to non–bailed–out matching firms, and (iii) when we control for different types of sample selection bias. An event study on bailout announcements provides corroborating evidence to our performance recovery findings.