Political Connections and the Informativeness of Insider Trades

Alan D. Jagolinzer, David F. Larcker, Gaizka Ormazabal and Daniel J. Taylor
Additional contact information
Alan D. Jagolinzer: University of CO
David F. Larcker: Rock Center for Corporate Governance, Stanford University
Gaizka Ormazabal: University of Navarra
Daniel J. Taylor: University of PA

Research Papers from Stanford University, Graduate School of Business

Abstract: This paper examines the relation between political connections and informed trading by corporate insiders in the context of the Financial Crisis. The unprecedented magnitude of government intervention, the substantial impact of this intervention on firm value, and the political nature of the intervention provide a powerful setting to examine the relation between political connections and informed trading. Consistent with political connections providing corporate insiders with an information advantage, we find strong evidence of a relation between political connections and the informativeness of their trades. Consistent with this relation stemming from private information related to government intervention, we find the relation is strongest during the period in which TARP funds were dispersed, and strongest among politically connected insiders at banks that received TARP funds. Examining insider trades around the announcements of TARP infusions, we find evidence of significant trading thirty days in advance of the announcement, and that these trades predict the market reaction to the announcement. Notably, we find these relations are present only for the trades of politically connected insiders. Overall, our results suggest that politically connected insiders had an information advantage during the Crisis and traded to exploit this advantage.

JEL-codes: G14 G20 G28 G30 K20 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-pol
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/424971
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3473

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().