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.
We identify political connections based on whether a board member has current or previous work experience at the Federal Reserve, Treasury Department, Congress, or a bank regulator (e.g., Office of Comptroller of Currency [OCC], Office of Thrift Supervision [OTS], or Federal Deposit Insurance Corporation [FDIC]). We then measure the “informativeness” of insider trades based on their predictive ability for future performance.