Do Exchange Traded Funds Affect Corporate Cash Holdings?

45 Pages Posted: 5 Sep 2019 Last revised: 6 Sep 2019

See all articles by Beiqi Lin

Beiqi Lin

University of Queensland - Business School

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Lei Zhang

University of Queensland - Business School

Date Written: August 1, 2019

Abstract

We examine the effects of corporate ownership by exchange traded funds (ETFs) on corporate cash holdings. Using a panel regression, we show that firms increase their cash holdings to hedge against higher anticipated stock risks induced by ETFs. To establish a causality interpretation, we use the exogenous changes to membership in the Russell index as an instrument for ETF ownership. We further show that shareholders place a higher value on additional cash held by firms with higher ETF ownership and these findings are more pronounced in financially constrained firms and good governance firms. Overall, our results suggest that firms hold more precautionary cash to mitigate future funding needs due to higher anticipated risks.

Keywords: exchange traded funds (ETF), corporate cash holdings

JEL Classification: G23, G32

Suggested Citation

Lin, Beiqi and Tan, Kelvin Jui Keng and Zhang, Lei, Do Exchange Traded Funds Affect Corporate Cash Holdings? (August 1, 2019). Available at SSRN: https://ssrn.com/abstract=3443955 or http://dx.doi.org/10.2139/ssrn.3443955

Beiqi Lin (Contact Author)

University of Queensland - Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Kelvin Jui Keng Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Lei Zhang

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

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