S&P 500 Index Addition, Liquidity Management and Tobin's Q

Accounting & Finance, Forthcoming

Posted: 7 Apr 2015 Last revised: 6 May 2015

Date Written: September 19, 2014

Abstract

This study examines the revision in cash holdings and the market valuation of investment opportunities of 475 firms added to the Standard & Poor's 500 stock market index from 1980 to 2010. We find that newly indexed firms have evolved to significantly lower cash balances, which we partially explain by the decreasing growth opportunities following index inclusion. Consistent with index inclusion loosening financial constraints, we document a larger decrease in cash for index inclusions in sectors with high financial dependence. We sort S&P 500 inclusions by corporate governance but do not find any empirical support that changes in cash and Tobin's Q are related to management entrenchment.

Keywords: S&P index effect, Tobin's Q, cash holdings, financial policy.

JEL Classification: G14, G32.

Suggested Citation

Platikanova, Petya, S&P 500 Index Addition, Liquidity Management and Tobin's Q (September 19, 2014). Accounting & Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2532846

Petya Platikanova (Contact Author)

ESADE - Ramon Llull University ( email )

Avenguda de Pedralbes 60
Barcelona, 08034
Spain

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