We study the government equity infusions into banks under the Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP). Strong banks opted out of CPP, and equity infusions were provided to banks that posed systemic risk and faced high financial distress costs but had strong...

We study the government equity infusions and the incentives of banks to participate in the Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP). We show that strong banks opted out of participating in CPP and that equity infusions were provided to banks that posed systemic...