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Political connections and informed trading: Evidence from TARP
Author(s) -
Akin Ozlem,
Coleman Nicholas S.,
FonsRosen Christian,
Peydró JoséLuis
Publication year - 2020
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12292
Subject(s) - bailout , insider trading , insider , uncorrelated , asset (computer security) , business , monetary economics , financial system , politics , government (linguistics) , finance , economics , financial crisis , law , political science , linguistics , statistics , philosophy , mathematics , computer security , computer science , macroeconomics
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.