Changes in cash holdings around the S&P 500 additions

Eric R. Brisker, Gonul Colak, David R. Peterson

Research output: Contribution to journalArticleScientificpeer-review

31 Citations (Scopus)


We analyze the changes in cash holding policies of S&P 500 firms from before to after their inclusion in the index. One year after inclusion, their mean industry-adjusted cash holdings decline by nearly 32% from the year before inclusion. Several factors explain this decline. The precautionary motive for cash subsides due to these firms becoming more visible, less uncertain, and less constrained to raise cheap external capital. Corporate governance deteriorates after inclusion due to increased managerial entrenchment, which leads to a reduction in cash as suggested by the free cash flow hypothesis. Most index firms face diminishing investment opportunities and decreasing capital expenditures, which implies a lesser need for cash holdings related to the transaction motive.
Original languageEnglish
Peer-reviewed scientific journalJournal of Banking & Finance
Issue number5
Pages (from-to)1787-1807
Number of pages21
Publication statusPublished - 01.05.2013
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • Cash holdings
  • Corporate governance
  • Liquidity policy
  • S&P 500 Index


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