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http://ssrn.com/abstract=1566284
 
 

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The Impact of TARP's Capital Purchase Program on the Stock Market Valuation of Participating Banks


Jeffrey Ng


Singapore Management University - School of Accountancy

Florin P. Vasvari


London Business School

Regina Wittenberg Moerman


University of Chicago - Booth School of Business

October 2014

Chicago Booth Research Paper No. 10-10

Abstract:     
We examine the impact of media coverage of the Capital Purchase Program (CPP) under the Troubled Assets Relief Program on the equity market valuation of participating bank holding companies (CPP banks). We document substantial negative coverage of the CPP and its participants over the five quarters following the program’s initiation. We find that the extent of negative media coverage about the CPP exerted substantial downward pressure on the stock returns of CPP banks, decreasing their valuation relative to bank holding companies not participating in the program. We show that our findings cannot be explained by differences in the banks’ financial viability at the CPP’s initiation, new information about their performance being released to the market after the CPP’s initiation or preceding stock returns causing the negative media coverage. Our findings highlight the importance of investor sentiment, as reflected by the tone of media coverage, in banks’ valuation during a period of high uncertainty in financial markets.

Number of Pages in PDF File: 45

Keywords: Capital Purchase Program, Capital Infusion, Valuation, Investor Sentiment, Media

JEL Classification: E61, E63, G12, G14, G18, G21, M48

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Date posted: March 7, 2010 ; Last revised: October 2, 2014

Suggested Citation

Ng, Jeffrey and Vasvari, Florin P. and Wittenberg Moerman, Regina, The Impact of TARP's Capital Purchase Program on the Stock Market Valuation of Participating Banks (October 2014). Chicago Booth Research Paper No. 10-10. Available at SSRN: http://ssrn.com/abstract=1566284 or http://dx.doi.org/10.2139/ssrn.1566284

Contact Information

Jeffrey Ng
Singapore Management University - School of Accountancy ( email )
60 Stamford Road
Room 4008
Singapore, 178900
Singapore
+6568280543 (Phone)

Florin P. Vasvari
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
Regina Wittenberg Moerman (Contact Author)
University of Chicago - Booth School of Business ( email )
1369 E. Hyde Park Blvd
Chicago, IL 60637
United States
773-263-0101 (Phone)
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