Three Essays on the Troubled Asset Relief Program

This dissertation focuses on the Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP) and consists of a historical overview of TARP and three empirical studies of the CPP. In the first empirical analysis, presented in chapter 2, I use an event study approach to examine the impact of firm announcements of CPP approval on their stock price. I find that the average firm in my sample enjoyed a 1.31% abnormal return on their stock price in the trading days surrounding this news event. In a multivariate regression that examines cross-firm variation in abnormal returns, I find evidence that legislative action in February 2009 to increase the restrictions on executive compensation at CPP-funded firms may have played an important role in dulling market enthusiasm for a firm qualifying for CPP capital. In chapter 3, I propose a model of TARP funding with numerous financial, structure, economic and regulatory explanatory variables to determine which factors were most influential in directing CPP capital to specific firms in the banking system. I find a clear pattern that CPP capital flowed most prominently to both larger, systematically important firms and firms that, while not on the verge of failure, were experiencing greater financial stress. In chapter 4, I study whether CPP funding altered bank behavior. Modifying established models from the economic literature on bank lending, loss recognition and CEO pay, I investigate whether CPP recipients behaved differently than non-recipient firms in lending activities, acknowledging portfolio losses or altering CEO compensation. Controlling for firm condition, I find that CPP recipients were significantly less likely to lend, but significantly more likely to acknowledge losses and curb CEO pay. Collectively, these results suggest that the government's decision to inject capital into the banking system primarily led to greater transparency about the health of recipient financial institutions.

Grantor dc:publisher

Temple University. Libraries

Year dc:date.issued

2011

Author dc:creator

• Kish, Andrew

Advisor dc:contributor.advisor

• Yilmazkuday, Hakan

Committee members dc:contributor.committeemember

• Swanson, Charles E.
• Ulu, Yasemin
• Kopecky, Kenneth J.

• Economics
• Finance
• Bailout
• Banking
• Cpp
• Event Study
• Financial Crisis
• Tarp

Statement dc:rights

• IN COPYRIGHT- This Rights Statement can be used for an Item that is in copyright. Using this statement implies that the organization making this Item available has determined that the Item is in copyright and either is the rights-holder, has obtained permission from the rights-holder(s) to make their Work(s) available, or makes the Item available under an exception or limitation to copyright (including Fair Use) that entitles it to make the Item available.

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Language dc:language.iso

eng

Dc Identifier Other

864884965

OAI identifier oai:identifier

oai:scholarshare.temple.edu:20.500.12613/1634