This article proposes a framework for bank default risk measure under government capital injection explicitly coinciding with an adverse signal that a rescued bank is expected to have significant future losses. A bank facing a serious problem of early closure may have a strong incentive to...

Previous research on market-based evaluation of bank equity with government bailout has modelled the bank as a corporate firm with risky assets and liabilities. No attempt was made to analyse explicitly equity quality expressed as a situation when the carrying value of the bank's equity book is...