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

Research output: Contribution to journalJournal article

E-pub ahead of print
<mark>Journal publication date</mark>2/02/2018
<mark>Journal</mark>European Journal of Finance
Number of pages27
<mark>State</mark>E-pub ahead of print
Early online date2/02/18
<mark>Original language</mark>English


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.

Bibliographic note

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