News Column

Data on Economics and Finance Described by Researchers at Tamkang University

June 7, 2014

By a News Reporter-Staff News Editor at Investment Weekly News -- Fresh data on Economics and Finance are presented in a new report. According to news reporting originating in Taipei, Taiwan, by VerticalNews journalists, research stated, "We analyze the implication of a bailout package including a loan guarantee and a direct equity capital injection on the equity risk of a distressed bank at the taxpayer costs. The lending function with a loan guarantee of the bank creates the need to model equity as a down-and-out call (DOC) option with a capital injection due to the bank in distress."

The news reporters obtained a quote from the research from Tamkang University, "We provide validation of the DOC model by showing that the values of down-and-out call at various levels of bailout are economically significant for the distressed bank. We show that a loan guarantee, a capital injection, or a combination of the two tends to be successful in improving bank equity return. From an equity-return perspective, the bank prefers the combined package to either the solo bailout. Alternatively, from an equity-risk perspective, the government (and thus the taxpayers) prefers either the solo bailout to the combined package."

According to the news reporters, the research concluded: "The results may cast doubt on the effectiveness of the combined rescue program to simultaneously exert equity return-increasing and equity risk-reducing effects on the distressed bank."

For more information on this research see: Bank equity risk under bailout programs of loan guarantee and/or equity capital injection. International Review of Economics & Finance, 2014;31():263-274. International Review of Economics & Finance can be contacted at: Elsevier Science Bv, PO Box 211, 1000 Ae Amsterdam, Netherlands. (Elsevier -; International Review of Economics & Finance -

Our news correspondents report that additional information may be obtained by contacting J.H. Lin, Tamkang University, Dept. of Management Sci, Taipei, Taiwan. Additional authors for this research include J.Y. Tsai and W.M. Hung.

Keywords for this news article include: Asia, Taipei, Taiwan, Economics and Finance

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Source: Investment Weekly News

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