Political Connections: Evidence from Insider Trading Around TARP

39 Pages Posted: 15 Dec 2016 Last revised: 27 Apr 2018

See all articles by Ozlem Akin

Ozlem Akin

Ozyegin University

Nicholas Coleman

Board of Governors of the Federal Reserve System

Christian Fons-Rosen

University of California, Merced

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: September 1, 2016

Abstract

To test for private information leakages from government to corporate executives, we exploit the 2008-2010 bank bailouts after Lehman’s failure using insider trading and political connections. 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 FOIA 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.

Keywords: Political connections, Political economy in banking, Insider Trading, TARP, bank bailouts

JEL Classification: D72, G01, G21, G28

Suggested Citation

Akin, Ozlem and Coleman, Nicholas and Fons-Rosen, Christian and Peydro, Jose-Luis, Political Connections: Evidence from Insider Trading Around TARP (September 1, 2016). Available at SSRN: https://ssrn.com/abstract=2885454 or http://dx.doi.org/10.2139/ssrn.2885454

Ozlem Akin (Contact Author)

Ozyegin University ( email )

Nisantepe Mah. Orman sok.
Cekmekoy
Istanbul, 34794
Turkey

Nicholas Coleman

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Christian Fons-Rosen

University of California, Merced ( email )

P.O. Box 2039
Merced, CA 95344
United States

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

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