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Innovation and Entrepreneurship Research

Political Connections: Evidence from Insider Trading Around TARP

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.

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Beteiligte Wissenschaftler

Prof. Christian Fons-Rosen, Ph.D. (MPI und Universitat Pompeu Fabra),
Prof. Jose Luis Peydro, Ph.D. (Pompeu Fabra University),
Prof. Özlem Akin, Ph.D. (Özyeğin University),
Nicholas Coleman, Ph.D. (Federal Reserve Board)

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