Journal of Finance Vol. 75 No. 4 2020

Political Connections and the Informativeness of Insider Trades

Alan D. Jagolinzer^{1,2,3,4,5,6,7,8}; David F. Larcker^{1,2,3,4,5,6,7,8}; Gaizka Ormazabal; Daniel J. Taylor^9,10,11

¹ University of Southern California · ² Binghamton University · ³ University of Utah · ⁴ University of Cambridge · ⁵ California University of Pennsylvania · ⁶ University of California, Davis · ⁷ Universidad de Navarra · ⁸ Stanford University · ⁹ Cornell University · ¹⁰ Issues Research · ¹¹ IESE Business School

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.

DOI

10.1111/jofi.12899

Volume

75

Issue

4

Pages

1833-1876

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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