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Journal Article

Political Connections and Informed Trading: Evidence from TARP

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Fons-Rosen,  Christian
MPI for Innovation and Competition, Max Planck Society;

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Citation

Akin, O., Coleman, N., Fons-Rosen, C., & Peydro, J.-L. (2021). Political Connections and Informed Trading: Evidence from TARP. Financial Management, 50(3), 619-644. doi:10.1111/fima.12292.


Cite as: https://hdl.handle.net/21.11116/0000-000D-C7E1-4
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.