According to recent reports, some local conglomerates have again requested a bailout by means of an interest rate cut because they are unable to meet their interest payments on bank loans. Likewise, the Ministry of Finance (MOF,
I simply cannot understand why the authorities concerned do not accomplish the whole task at one stroke, letting those weak, small industries die a natural death earlier, but instead give them a helping hand. As a result, rumors of bearish business come out every now and then, dealing terrible blows to the market again and again.
Whenever problems in these conglomerates are exposed, investors' doubts and worries about stocks in those industries and even the whole market increase. Such doubts drive down overall stock prices, and can even cause the size of the financial markets to shrink.
Facing information which is not necessarily correct, investors are unable to correctly identify problematic industries, so they have no choice but to treat them equally and predict lower indexes for all stocks. The situation is like when elementary school teachers have trouble telling who is making a noise and disrupting the class: they may have to punish all the students by making them all stand in the corner.
Due to the existence of problematic industries, companies that are performing well are increasingly suspected of facing operational crises as well. Such a phenomenon is called the adverse selection effect. The key to solving the above problems is to establish an environment where information flows freely. A well-known idiom can serve as its footnote -- honesty is the best policy.
It is really hard to believe that investors, after going through lots of difficult conditions and experiencing tricks played by many unhealthy industries, can still be influenced by cooked up official accounts. Finally, shrewd investors are used to casting doubt upon official numbers. This surely harms the credibility of the authorities concerned and is detrimental to their effectiveness in implementing policies.
Therefore, the government should not underestimate investors' intelligence and continually release fake numbers to prove the effectiveness of bailouts. For example, the MOF claimed that 60 percent of firms that have received bailouts regularly meet their interest payments.
But actually some of these industries are lured by bailout incentives and feign sickness. Once the government stops backing them, they have to face enormous pressure from banks. Then, in order to weather the storm, companies may have to sell parts of their assets. Since most of the industries receiving bailouts manage to sell their assets at a tortoise-like speed, we can take them as negative examples of such a bailout policy.
The dissemination of incorrect or incomplete information has become the source of so many problems in the financial market. The authorities concerned should play the role of a magic mirror and help investors distinguish good from bad in the market so as to facilitate capital flow and strengthen the financial market.
But if the government tries to conceal and distort the real information simply to create fictional numbers, rational investors will only become more distrustful of official figures and the market. This will only worsen the problem.
Lai Ping-yen is an associate professor in the Department of Financial Management at Da Yeh University.
Translated by Jackie Lin
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