Does Joining the S&P 500 Index Hurt Firms?
Charles A. Dice Working Paper No. 2020-17
97 Pages Posted: 27 Jul 2020 Last revised: 30 Jul 2020
Date Written: July 20, 2020
We investigate the impact on firms of joining the S&P 500 index from 1997 to 2017. We find that the positive announcement effect on the stock price of index inclusion has disappeared and the long-run impact of index inclusion has become negative. Inclusion worsens stock price informativeness and some aspects of governance. Compensation, investment, and financial policies change with index inclusion. For instance, payout policies of firms joining the index become more similar to the policies of their index peers. ROA falls following inclusion. There is no evidence of an impact of inclusion on competition.
Keywords: S&P 500 Index Additions, Stock Performance, Indexing, Investment, Governance, Passive Investing, Share Repurchases, Stock Price Informativeness
JEL Classification: G11, G14, G23, G31, G32, G35
Suggested Citation: Suggested Citation