Prior research argues that the process of intermediation is opaque and produces uncertainty about the riskiness of banks, which may adversely affect the efficiency of bank stock prices. Using the Hou and Moskowitz (2005) measure of price delay, which captures the inefficiency of stock prices, we test for, and find evidence supporting the idea that opacity is positively associated with price delay. Bank stocks have markedly higher delay than similar non-bank stocks. This higher level of delay is driven, in part, by market-based measures of informational opacity as well as the asset composition of the bank's balance sheet. Combined, our findings suggest that bank opacity reduces the efficiency of financial markets.

Political involvement has long been shown to be a profitable investment for firms that seek favorable regulatory conditions or support in times of economic distress. But how important are different types of political involvement for the timing and magnitude of political support? To answer this question, we take a comprehensive look at the lobbying expenditures and political connections of banks that were recipients of government support under the 2008 Troubled Asset Relief Program (TARP). We find that politically-engaged firms were not only more likely to receive TARP funds, but they also received a greater amount of TARP support and received the support earlier than firms that were not politically involved.