Political Connections and the Informativeness of Insider Trades
Journal of Finance (Forthcoming)
108 Pages Posted: 8 Sep 2016 Last revised: 11 Aug 2020
Date Written: February 1, 2020
We analyze the trading of corporate insiders at leading financial institutions during the 2007 to 2009 financial crisis. We find strong evidence of a relation between political connections and informed trading during the period in which TARP funds were disbursed, and that the relation is most pronounced among corporate insiders with recent direct connections. Notably, we find evidence of abnormal trading by politically connected insiders 30 days in advance of TARP infusions, and that these trades anticipate the market reaction to the infusion. Our results suggest that political connections can facilitate opportunistic behavior by corporate insiders.
Keywords: Political Connections; Insider Trading; Financial Crisis; Troubled Asset Relief Program; Capital Purchase Program
JEL Classification: G14; G20; G28; G30; K2
Suggested Citation: Suggested Citation