Taking TARP Funds Can Be Hazardous to Your Bank's Wealth
17 Pages Posted: 7 Nov 2009
Date Written: November 6, 2009
Abstract
This paper examines the market-price to book-value ratio for 588 listed bank stocks as of March 31, 2009. We relate each bank’s market-price to book-value ratio to several fundamental ratios along with whether it took funds from the U. S. Treasury under the Troubled Asset Relief Program (TARP).
The results of this study show that banks who took funds under the TARP program had lower market-price to book-value ratios than banks that refrained from taking such funds. In addition, we found that lower relative costs, higher non-interest income in relation to interest income, lower assets in a non-accrual status and lower owned real estate as a percentage of total assets and higher interest income to total assets ratios explained the banks’ market-price to book-value ratios with high statistical significance.
Keywords: banks, banking, TARP, market price-to-book value, X-Efficiency
JEL Classification: G12, G21
Suggested Citation: Suggested Citation
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