ETF Ownership and Corporate Cash Holdings
European Financial Management
49 Pages Posted: 23 Aug 2019 Last revised: 22 Jan 2022
Date Written: January 20, 2022
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: Suggested Citation