EconPapers    
Economics at your fingertips  
 

Changes in cash holdings around the S&P 500 additions

Eric R. Brisker, Gönül Çolak and David R. Peterson

Journal of Banking & Finance, 2013, vol. 37, issue 5, 1787-1807

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.

Keywords: Cash holdings; Corporate governance; Liquidity policy; S&P 500 Index (search for similar items in EconPapers)
JEL-codes: G31 G34 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426613000460
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:5:p:1787-1807

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2017-10-13
Handle: RePEc:eee:jbfina:v:37:y:2013:i:5:p:1787-1807