Is Stock Index Membership for Sale?

Kun Li, Xin (Kelly) Liu and Shang-Jin Wei

No 29365, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: While major stock market indices are followed by large monetary investments, we document that membership decisions for S&P 500 have a nontrivial amount of discretion. We show that firms’ purchases of S&P ratings appear to improve their chance of entering the index (but purchases of Moody’s ratings do not). Furthermore, firms tend to purchase more S&P ratings when there are openings in the index membership. Such a pattern is also confirmed by an event study that explores a rule change on index membership in 2002. Finally, discretionary additions exhibit subsequent deterioration in financial performance relative to rules-based additions.

JEL-codes: F30 G10 G2 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-cwa and nep-fmk
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