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The competitive effects of S&P 500 Index revisions
Author(s) -
Chen ShengSyan,
Lin YuehHsiang
Publication year - 2018
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12312
Subject(s) - competitor analysis , valuation effects , economics , valuation (finance) , index (typography) , monetary economics , equity (law) , investment (military) , share price , market share , financial economics , microeconomics , finance , stock exchange , management , politics , world wide web , computer science , political science , law
Firms added to the S&P 500 Index gain a competitive advantage over their non‐S&P 500 industry competitors. They experience positive stock valuation effects at the expense of competitors. The inclusion is associated with both reductions in financial constraints and the cost of equity and increases in capital investment for the newly added firms. When the increase in capital investment is greater, they gain more market share and enjoy better valuation effects. Rivals’ share price responses are negatively related to the announcement effect of the newly added firm. Deletions from the index, however, do not have symmetric effects.