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S&P 500 index addition, liquidity management and Tobin's Q

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  • Petya Platikanova
  • Henk Berkman

Abstract

type="main" xml:id="acfi12105-abs-0001"> This study examines the revision in cash holdings and the market valuation of investment opportunities of 475 firms added to the Standard & Poor'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 Tobin's Q are related to management entrenchment.

Suggested Citation

  • Petya Platikanova & Henk Berkman, 2016. "S&P 500 index addition, liquidity management and Tobin's Q," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(2), pages 479-508, June.
    • Handle: RePEc:bla:acctfi:v:56:y:2016:i:2:p:479-508
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    File URL: http://hdl.handle.net/10.1111/acfi.2016.56.issue-2
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    Cited by:

    1. Hernandez-Perdomo, Elvis & Guney, Yilmaz & Rocco, Claudio M., 2019. "A reliability model for assessing corporate governance using machine learning techniques," Reliability Engineering and System Safety, Elsevier, vol. 185(C), pages 220-231.
    2. Cambrea, Domenico Rocco & Ponomareva, Yuliya & Pittino, Daniel & Minichilli, Alessandro, 2022. "Strings attached: Socioemotional wealth mixed gambles in the cash management choices of family firms," Journal of Family Business Strategy, Elsevier, vol. 13(3).
    3. Houdou Basse Mama & Stefan Mueller & Ulrich Pape, 2017. "What’s in the news? The ambiguity of the information content of index reconstitutions in Germany," Review of Quantitative Finance and Accounting, Springer, vol. 49(4), pages 1087-1119, November.
    4. Siva K. Balasubramanian & Yiwei Fang & Zihao Yang, 2021. "Twitter Presence and Experience Improve Corporate Social Responsibility Outcomes," Journal of Business Ethics, Springer, vol. 173(4), pages 737-757, November.

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