Political Connections and the Informativeness of Insider Trades
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Date
2020-08-01
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Journal of Finance
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Wiley
Melbourne Authors
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Accounting
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Journal Article
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Jagolinzer, A. D., Larcker, D. F., Ormazabal, G. & Taylor, D. J. (2020). Political Connections and the Informativeness of Insider Trades. The Journal of Finance, 75 (4), pp.1833-1876. https://doi.org/10.1111/jofi.12899.
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Abstract
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 Troubled Asset Relief Program (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.