Changes in cash holdings around the S&P 500 additions

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

Forskningsoutput: TidskriftsbidragArtikelVetenskapligPeer review

13 Citeringar (Scopus)

Sammanfattning

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.
OriginalspråkEngelska
Referentgranskad vetenskaplig tidskriftJournal of Banking & Finance
Volym37
Utgåva5
Sidor (från-till)1787-1807
Antal sidor21
ISSN0378-4266
DOI
StatusPublicerad - 01.05.2013
MoE-publikationstypA1 Originalartikel i en vetenskaplig tidskrift

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