 Impact of the TARP financing choice on existing preferred stockDong H. Kim and Duane Stock Journal of Corporate Finance, 2012, vol. 18, issue 5, 1121-1142 Abstract: The October 14, 2008 TARP program mandated a forced issuance of TARP preferred stock by the largest U.S. banks. Soon after, many smaller banks were not forced but chose to issue TARP preferred stock after being approved for issuance. We investigate the impact of TARP preferred issuance upon bonds, preferred stock, and common stock. In particular, we focus upon two different types of outstanding preferred stock. These two different types of preferred stock are (1) trust preferred stock, which is senior to TARP preferred stock, and (2) non-trust preferred stock, which has equal claim to TARP preferred stock. We present competing theories for expecting that trust preferred should enjoy greater or lesser returns relative to non-trust. Consistent with the priority rule theory, but inconsistent with the default theory, we find that trust preferred enjoyed greater benefits from TARP issuance than did non-trust preferred for both forced and non-forced banks on the October 14 TARP announcement date. In contrast, there is no clear priority rule effect on the approval dates for non-forced banks. Keywords: Priority; TARP; Preferred stock; Bankruptcy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:18:y:2012:i:5:p:1121-1142 DOI: 10.1016/j.jcorpfin.2012.07.006 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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