ETF Ownership and Corporate Cash Holdings

51 Pages Posted: 23 Aug 2019

See all articles by Onur Kemal Tosun

Onur Kemal Tosun

Cardiff Business School - Accounting and Finance Section

Izidin El Kalak

Cardiff Business School

Date Written: August 21, 2019

Abstract

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

Suggested Citation

Tosun, Onur Kemal and El Kalak, Izidin, ETF Ownership and Corporate Cash Holdings (August 21, 2019). Available at SSRN: https://ssrn.com/abstract=3440350 or http://dx.doi.org/10.2139/ssrn.3440350

Onur Kemal Tosun

Cardiff Business School - Accounting and Finance Section ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Izidin El Kalak (Contact Author)

Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

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