Department of Economics and Business - Universitat Pompeu Fabra

Title:: Political connections and informed trading: Evidence from TARP
Authors:: Ozlem Akin, Nicholas S. Coleman, Christian Fons-Rosen and José-Luis Peydró
Date:: October 2016 (Revised: March 2021)
Abstract:: We study insider trading behavior surrounding the largest bank bailout in history: 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 FOIA 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.
Keywords:: Political connections, Political economy in banking, Insider trading, TARP, bank bailouts
JEL codes:: D72, G01, G21, G28
Area of Research:: Business Economics and Industrial Organization / Finance and Accounting / Labour, Public, Development and Health Economics
Published in:: Financial Management, 50(3), 2021, pp. 619-644

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