Does Joining the S&P 500 Index Hurt Firms?

97 Pages Posted: 27 Jul 2020 Last revised: 30 Jul 2020

See all articles by Benjamin Bennett

Benjamin Bennett

Tulane University - A.B. Freeman School of Business

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Zexi Wang

Lancaster University

Date Written: July 20, 2020

Abstract

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

Bennett, Benjamin and Stulz, Rene M. and Wang, Zexi, Does Joining the S&P 500 Index Hurt Firms? (July 20, 2020). Fisher College of Business Working Paper No. 2020-03-017, Charles A. Dice Working Paper No. 2020-17, European Corporate Governance Institute – Finance Working Paper No. 690/2020, Available at SSRN: https://ssrn.com/abstract=3656628 or http://dx.doi.org/10.2139/ssrn.3656628

Benjamin Bennett

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

HOME PAGE: https://sites.google.com/site/benjaminbennettfinance/home

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Zexi Wang

Lancaster University ( email )

Lancaster University Management School
Bailrigg
Lancaster, LA1 4YX
United Kingdom

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