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Media Coverage and the Stock Market Valuation of TARP Participating Banks

47 Pages Posted: 7 Mar 2010 Last revised: 12 Mar 2015

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Florin P. Vasvari

London Business School

Regina Wittenberg Moerman

University of Southern California

Date Written: March 2015

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.

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

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

Suggested Citation

Ng, Jeffrey and Vasvari, Florin P. and Wittenberg Moerman, Regina, Media Coverage and the Stock Market Valuation of TARP Participating Banks (March 2015). European Accounting Review Forthcoming; Chicago Booth Research Paper No. 10-10. Available at SSRN: https://ssrn.com/abstract=1566284 or http://dx.doi.org/10.2139/ssrn.1566284

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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 Southern California ( email )

Los Angeles, CA 90089
United States

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