Changes in cash holdings around the S&P 500 additions

Brisker, Eric R, Çolak, Gönül and Peterson, David R (2013) Changes in cash holdings around the S&P 500 additions. Journal of Banking and Finance, 37 (5). pp. 1787-1807. ISSN 0378-4266

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Abstract

We analyze the changes in cash holding policies of S&P 500 firms from before to after their inclusion in the index. One year after inclusion, their mean industry-adjusted cash holdings decline by nearly 32% from the year before inclusion. Several factors explain this decline. The precautionary motive for cash subsides due to these firms becoming more visible, less uncertain, and less constrained to raise cheap external capital. Corporate governance deteriorates after inclusion due to increased managerial entrenchment, which leads to a reduction in cash as suggested by the free cash flow hypothesis. Most index firms face diminishing investment opportunities and decreasing capital expenditures, which implies a lesser need for cash holdings related to the transaction motive. © 2013 Elsevier B.V.

Item Type: Article
Schools and Departments: University of Sussex Business School > Accounting and Finance
SWORD Depositor: Mx Elements Account
Depositing User: Mx Elements Account
Date Deposited: 22 Feb 2022 10:28
Last Modified: 22 Feb 2022 10:30
URI: http://sro.sussex.ac.uk/id/eprint/104497

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