Do Borrowers Benefit from Bank Bailouts The Effects of TARP on Loan Contract Terms
We study whether borrowers benefit from bank bailouts using the U.S. Troubled Asset Relief Program (TARP) Using loan level data and difference in difference methodology, we find more favorable loan contract terms spreads, amounts, maturities, collateral, and covenants for borrowers from bailedout banks, suggesting increased credit supply at the intensive margin. Findings are robust to dealing with potential endogeneity and other checks. Our results indicate that riskier borrowers benefit most, consistent with increased exploitation of moral hazard. Terms improve more for large and publicly listed borrowers, suggesting bailouts may provide less assistance for financially constrained firms. Benefits also flow to both relationship and non relationship borrowers.