TY - BOOK ID - 134235879 TI - The Chrysler effect : the impact of the Chrysler bailout on borrowing costs AU - Anginer, Deniz AU - Warburton, A. Joseph PY - 2010 PB - Washington, D.C., The World Bank, DB - UniCat KW - Access to Finance KW - Bankruptcies KW - Bankruptcy and Resolution of Financial Distress KW - Bankruptcy laws KW - Cost of debt KW - Creditor KW - Creditor claims KW - Debt KW - Debt Markets KW - Deposit Insurance KW - Emerging Markets KW - Finance and Financial Sector Development KW - Financial markets KW - Government interventions KW - Private Sector Development KW - Reorganizations KW - Risk Factors UR - https://www.unicat.be/uniCat?func=search&query=sysid:134235879 AB - Did the U.S. government's intervention in the Chrysler reorganization overturn bankruptcy law? Critics argue that the government-sponsored reorganization impermissibly elevated claims of the auto union over those of Chrysler's other creditors. If the critics are correct, businesses might suffer an increase in their cost of debt because creditors will perceive a new risk, that organized labor might leap-frog them in bankruptcy. This paper examines the financial market where this effect would be most detectible, the market for bonds of highly unionized companies. The authors find no evidence of a negative reaction to the Chrysler bailout by bondholders of unionized firms. They thus reject the notion that investors perceived a distortion of bankruptcy priorities. To the contrary, bondholders of unionized firms reacted positively to the Chrysler bailout. This evidence suggests that bondholders interpreted the Chrysler bailout as a signal that the government will stand behind unionized firms. The results are consistent with the notion that too-big-to-fail government policies generate moral hazard in the credit markets. ER -