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The impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Repo ‘Safe harbor’ provisions on investors

Chircop, Justin and Fabrizi, Michele and Parbonetti, Antonio (2018) The impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Repo ‘Safe harbor’ provisions on investors. European Journal of Finance. ISSN 1351-847X

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    Abstract

    The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 significantly expanded the exemptions from the normal workings of the U.S. Bankruptcy Code. Using a large sample of U.S. banks, we study investors’ reaction to news about the promulgation of the BAPCPA repo ‘safe harbor’ provisions and the influence extending such exemptions to repos collateralized by riskier collateral had on equity market information asymmetry. We find a negative market reaction to news events about the promulgation of BAPCPA, which subsequent cross-sectional analysis suggests is at least partly driven by repo exposure. This finding suggests that investors perceived the increase in finance risk from the extension of the ‘safe harbor’ provisions as dominating the perceived gain from accessing cheaper finance. Further, we find that the promulgation of BAPCPA gave rise to increased information asymmetry for banks with repo exposure.

    Item Type: Journal Article
    Journal or Publication Title: European Journal of Finance
    Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 02/02/2018, available online: http://www.tandfonline.com/10.1080/1351847X.2018.1427608
    Uncontrolled Keywords: Repurchase agreements ; bankruptcy code ; safe harbor
    Subjects:
    Departments: Lancaster University Management School > Accounting & Finance
    ID Code: 89579
    Deposited By: ep_importer_pure
    Deposited On: 09 Jan 2018 14:56
    Refereed?: Yes
    Published?: Published
    Last Modified: 11 Apr 2018 04:09
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/89579

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