ETF Ownership and Corporate Cash Holdings
51 Pages Posted: 23 Aug 2019
Date Written: August 21, 2019
Do exchange-traded funds (ETFs) influence corporate cash-holding decisions? Consistent with the managerial learning channel from the stock market, we document strong evidence that firms included in ETF baskets have higher cash-holding levels. We address endogeneity concerns through instrumental variable, dynamic generalized methods of moments, and propensity score-matching methods. Further, we identify changes in revenues, external financing, share repurchases, and net working capital as potential channels through which cash holdings increase due to higher ETF ownership. This increase in cash holdings is associated with a positive impact on firm value. Finally, we find that ETF investments increase the CEO’s pay-for-performance sensitivity.
Keywords: Exchange-traded funds (ETFs), Cash Holdings, Share Price Informativeness, Cash Value, Managerial Learning
JEL Classification: G14, G23, G32
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