Academic

Bayazitova & Shivdasani on TARP

By Lawrence Solum

Dinara Bayazitova and Anil Shivdasani (University of North Carolina and University of North Carolina) have posted Assessing TARP on SSRN. Here is the abstract:

We show that capital infusions under the Troubled Asset Relief Program (TARP) were provided to banks most likely to pose systemic risk, were exposed to funding uncertainties in volatile capital markets, had weak capital structures, but had sound loan portfolios compared to banks that did not receive TARP infusions. Announcements of TARP capital infusions had a sharply positive effect on valuations of recipient banks, particularly for larger and earlier recipients, and those with higher credit losses and asset write-downs. Data from banks that chose not to participate in TARP suggests that the value enhancement from TARP capital arises from lowered financial distress costs, and not from a certification effect of TARP. Recently, costs of participating in TARP have increased significantly for banks due to deteriorating political sentiment. We show that the passage of H.R. 1586 imposing punitive taxes on employee bonuses at TARP recipients led to sharply negative excess returns for affected banks. Recent announcements of banks withdrawing from TARP led to significant valuation gains.

Full post as published by Legal Theory Blog on August 31, 2009 (boomark / email).