Date of Award

5-2014

Document Type

Thesis

Degree Name

Master of Arts (MA)

Legacy Department

Economics

Advisor

Dwyer, Gerald P

Committee Member

Wood , Daniel H

Committee Member

Espey , Molly

Abstract

This research presented here mainly focuses on analyzing investors' reactions toward banks' announcement of TARP repayment. Considering huge difference among sample banks, I split the result of abnormal return into subgroups based on banks size and financial performance. And then I conduct comparisons of each group to reveal the possible effects on market reactions casted by size and financial performance. To confirm my results on market reactions to TARP repayment, I perform two regression analyses on both full sample and subsample with cumulative abnormal return (CAR) as dependent variable and controlled variables as independent variables. Data over the period from 2008Q4 to 2013Q4 for 196 and 175 U.S. public banks and bank holding companies is derived from ProPublica website, CRSP data base and COMPSTAT data base. Market model is used to calculate cumulative abnormal return and the OLS method is adopted to run regression. In the end, I find that comparatively larger banks with relatively better accounting performance and relatively higher capital ratios are inclined to make multiple repayments while the comparatively smaller banks with relatively worse accounting performance and relatively worse capital ratios are inclined to pay back loans all at once. Also, I find that investors react positively to news on TARP repayments. Especially, splitting the sample by various possible determinants for CARs, I find that stock market investors remain less optimistic about comparatively larger banks with relatively better accounting performance and relatively higher capital ratios than the comparatively smaller banks with relatively worse accounting performance and relatively worse capital ratios. I suggest that small and struggled companies have more potential to develop after exiting TARP.

Included in

Finance Commons

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