Political connections and informed trading: Evidence from TARP

Ozlem Akin, Nicholas S. Coleman, Christian Fons‐Rosen and Jose-Luis Peydro
Authors registered in the RePEc Author Service: Christian Fons-Rosen

Financial Management, 2021, vol. 50, issue 3, 619-644

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.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:bla:finmgt:v:50:y:2021:i:3:p:619-644

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