THE U.S. TREASURY'S CAPITAL PURCHASE PROGRAM: TREASURY'S SELECTIVITY AND MARKET RETURNS ACROSS WEAK AND HEALTHY BANKS

We evaluate firms that voluntarily participated in the Treasury's Capital Purchase Plan (CPP), focusing on the market impact of their decision to participate. For healthy firms, abnormal stock returns are negative. For weak firms, CPP was a cheap source of funding, as demonstrated by their sign...

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Bibliographic Details
Published in:The Journal of financial research 2014-06, Vol.37 (2), p.211-241
Main Authors: Carow, Kenneth A., Salotti, Valentina
Format: Article
Language:English
Subjects:
Bank investment divisions
Banking industry
Capital
Return on investment
Securities analysis
Securities markets
Studies
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Summary:We evaluate firms that voluntarily participated in the Treasury's Capital Purchase Plan (CPP), focusing on the market impact of their decision to participate. For healthy firms, abnormal stock returns are negative. For weak firms, CPP was a cheap source of funding, as demonstrated by their significant positive returns. Despite gains for weak firms, not all were permitted to participate. The Treasury made funding available to institutions with low levels of capital only if they also had better performing loan portfolios. Providing further evidence of the Treasury's selectivity, weak firms not participating in the CPP had significantly lower long‐term returns than did weak firms that participated.
ISSN:0270-2592
1475-6803
DOI:10.1111/jfir.12035