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Political Connections and the Informativeness of Insider Trades
Author(s) -
JAGOLINZER ALAN D.,
LARCKER DAVID F.,
ORMAZABAL GAIZKA,
TAYLOR DANIEL J.
Publication year - 2020
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12899
Subject(s) - insider trading , politics , insider , asset (computer security) , business , relation (database) , monetary economics , financial system , economics , finance , political science , law , computer security , database , computer science
We analyze the trading of corporate insiders at leading financial institutions during the 2007 to 2009 financial crisis. We find strong evidence of a relation between political connections and informed trading during the period in which Troubled Asset Relief Program (TARP) funds were disbursed, and that the relation is most pronounced among corporate insiders with recent direct connections. Notably, we find evidence of abnormal trading by politically connected insiders 30 days in advance of TARP infusions, and that these trades anticipate the market reaction to the infusion. Our results suggest that political connections can facilitate opportunistic behavior by corporate insiders.