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S & P 500 index addition, liquidity management and T obin's Q
Author(s) -
Platikanova Petya
Publication year - 2016
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12105
Subject(s) - index (typography) , market liquidity , valuation (finance) , corporate governance , cash , stock market , free cash flow , monetary economics , economics , cash flow , business , finance , paleontology , horse , world wide web , computer science , biology
This study examines the revision in cash holdings and the market valuation of investment opportunities of 475 firms added to the S tandard & P oor's 500 ( S & P 500) stock market index from 1980 to 2010. We find that newly indexed firms have evolved to significantly lower cash balances, which we partially explain by the decreasing growth opportunities following index inclusion. Consistent with index inclusion loosening financial constraints, we document a larger decrease in cash for index inclusions in sectors with high financial dependence. We sort S & P 500 inclusions by corporate governance quality but do not find any empirical support that changes in cash and T obin's Q are related to management entrenchment.