Political connections and informed trading: Evidence from TARP. Issue 3 (2nd September 2020)

• Record Type: Journal Article
• Authors: Akin, Ozlem; Coleman, Nicholas S.; Fons‐Rosen, Christian; Peydró, José‐Luis
• Is Part Of: Financial management. Volume 50:Issue 3(2021)
• Page Start: 619
• Page End: 644
• Publication Date: 2020-09-02
• Subjects: bank bailouts -- insider trading -- political connections -- political economy in banking -- TARP; Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12292
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract: We study insider trading behavior surrounding the largest bank bailout in history: Troubled Asset Relief Program (TARP). In politically connected banks, insider buying during the pre‐TARP period is associated with increases in abnormal returns around bank‐specific TARP announcement; for unconnected banks, trading and returns are uncorrelated. Results hold across insiders within the same bank and are stronger for finance‐related government connections. Through a Freedom of Information Act request, we obtained the previously undisclosed TARP funds requested; the ratio of received to requested funds correlates both with abnormal returns and insider buying behavior in connected banks.