Keeping Up with the Joneses and the Real Effects of S&P 500 Inclusion

Fisher College of Business Working Paper No. 2021-03-07

Charles A. Dice Working Paper No. 2021-07

64 Pages Posted: 12 May 2021

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: May 12, 2021

Abstract

Firms added to the S&P 500 index join a prestigious and exclusive club. They want to fit in the club, which creates a “keeping up with the Joneses” effect. Firms pay more attention to their index peers after inclusion and their investment, external financing, and payouts comove more with their index peers. These effects do not appear to result from the increased coordination among investors posited by the common ownership literature as inclusion does not cause a decrease in competition. Since index inclusion does not increase shareholder wealth permanently, these peer effects do not appear to benefit shareholders.

Keywords: S&P 500 index additions, peer effects, investment, external financing, dividends, share repurchases, common ownership

JEL Classification: G11, G14, G23, G31, G32, G35

Suggested Citation

Bennett, Benjamin and Stulz, Rene M. and Wang, Zexi, Keeping Up with the Joneses and the Real Effects of S&P 500 Inclusion (May 12, 2021). Fisher College of Business Working Paper No. 2021-03-07, Charles A. Dice Working Paper No. 2021-07, Available at SSRN: https://ssrn.com/abstract=3844569 or http://dx.doi.org/10.2139/ssrn.3844569

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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