Anchoring bias in the TARP warrant negotiations
AbstractThis paper finds that banks that offered lower opening bids were rewarded with significantly lower warrant repurchase prices in transactions that raised $2.856 billion in 2009. These results were scaled by third-party consultants’ and the Congressional Oversight Panel's estimates of the warrants’ value. In contrast to the experimental psychology studies on anchoring bias in negotiations, these are real transactions involving large sums of money. This paper finds that larger banks paid significantly higher prices after controlling for other factors, and the U.S. Treasury obtained better prices over time. The results on anchoring bias are strong even after controlling for bank managers’ potential informational advantages over U.S. Treasury negotiators.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economics and Business.
Volume (Year): 64 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/jeconbus
Anchoring bias; Behavioral economics; Behavioral finance; Alternating offers; Bailout; Banks; Banking; Bargaining; Bids; Capital Purchase Program (CPP); Emergency Economic Stabilization Act (EESA); Heuristics; Negotiations; Offers; Options; Troubled Asset Relief Program (TARP); Valuation; Warrants;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- G01 - Financial Economics - - General - - - Financial Crises
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
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