ETF Ownership and Corporate Cash Holdings

European Financial Management

49 Pages Posted: 23 Aug 2019 Last revised: 22 Jan 2022

See all articles by Izidin El Kalak

Izidin El Kalak

Cardiff Business School

Onur Kemal Tosun

Cardiff Business School - Accounting and Finance Section

Date Written: January 20, 2022

Abstract

Do exchange traded funds (ETFs) influence corporate cash holding decisions? Consistent with reduced managerial learning from the stock market and increased uncertainty due to higher ETF ownership, we show that firms included in ETF baskets have higher cash holdings as a precautionary response. We address endogeneity concerns through different natural experiments, namely, the reconstitution of the Russell 1000/2000 index and BlackRock’s acquisition of iShares. We identify changes in revenue, external financing, share repurchases, and net working capital as potential channels through which cash holdings increase due to higher ETF ownership, with cash holdings increases having positive impact on firm value.

Keywords: Exchange traded funds, Cash holdings, Share price informativeness, Cash value, Managerial learning

JEL Classification: G14; G23; G32

Suggested Citation

El Kalak, Izidin and Tosun, Onur Kemal, ETF Ownership and Corporate Cash Holdings (January 20, 2022). European Financial Management, Available at SSRN: https://ssrn.com/abstract=3440350 or http://dx.doi.org/10.2139/ssrn.3440350

Izidin El Kalak

Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Onur Kemal Tosun (Contact Author)

Cardiff Business School - Accounting and Finance Section ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

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