Operational Performance of Firms Added to the S&P 500 Index

Although some studies have documented that there is a price increase for firms added to the S&P 500 Index other studies show mixed results. A more recent research suggests that managers are under greater scrutiny once they are added to the S&P500, and work harder to improve firm performance. They examine the earnings performance of the firms included in the S&P500 Index. We examine whether operational performance measured by net operating profits, cost of capital, and capital invested improves for these firms. Our findings show that net operating profits increases while cost of capital decreases over the same period, and capital invested increases significantly. The results imply that firms do improve operational performance; however, the outcome of the capital invested could be positive or negative, perhaps, explaining the mixed results from past studies.