2023-10-10 - Institut für Wirtschaftsforschung Halle, Kleine … (GERMANY) - Leibniz-Institut für Wirtschaftsforschung Halle; IWH
The anticipation of a future bailout of distressed firms worsens ex ante adverse selection, causing a market freeze at present and inviting government intervention ("bailout trap"). When firms of heterogenous qualities raise financing, high-quality firms are willing to bear adverse selection...