Evidence on the Troubled Assets Relief Program, Bailout Size, Returns and Tail Risk

The International Journal of Business and Finance Research, v. 13 (2) p. 1-20, 2019

20 Pages Posted: 2 Nov 2019

See all articles by Mthuli Ncube

Mthuli Ncube

Quantum Global Research Lab Ltd

Kjell Hausken

Stavanger University College

Date Written: 2019

Abstract

The US government launched the Troubled Assets Relief Program (TARP) in mid-September 2008. This article analyzes the market response to the TARP launch. We reject the null hypothesis that the bailout size has no effect on the firm’s value. Banks receiving large bailouts endure significantly larger stock price declines than banks receiving small bailouts. The average buy-and-hold return from 2008 Q4 to 2009 Q1 is 42.68% for the 293 sampled banks. Bailout banks perform 5.8% worse than non-bailout banks. The banks’ losses increase significantly from the pre-TARP period to TARP initiation period, suggesting greater tail risk from 2008 Q4 to 2009 Q1. Bailout banks contribute much more to the overall systematic risk than nonbailout banks. TARP helped restore investors’ confidence, and closed December 19, 2014 with $15.3 billion profit. Finally some causal effects of bank bailouts are considered.

Keywords: TARP Bailout, Abnormal Returns, Tail Risk, Financial Crisis, Counterfactual

JEL Classification: G18, G21, G28

Suggested Citation

Ncube, Mthuli and Hausken, Kjell, Evidence on the Troubled Assets Relief Program, Bailout Size, Returns and Tail Risk (2019). The International Journal of Business and Finance Research, v. 13 (2) p. 1-20, 2019. Available at SSRN: https://ssrn.com/abstract=3461809

Mthuli Ncube (Contact Author)

Quantum Global Research Lab Ltd ( email )

Kjell Hausken

Stavanger University College ( email )

PO Box 2557
N-4091 Stavanger
Norway

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