ETFs Ownership and Corporate Cash Holdings

62 Pages Posted: 23 Aug 2019 Last revised: 24 Mar 2020

See all articles by Onur Kemal Tosun

Onur Kemal Tosun

Cardiff Business School - Accounting and Finance Section

Izidin El Kalak

Cardiff Business School

Date Written: August 21, 2019

Abstract

Do exchange-traded funds (ETFs) influence corporate cash holding decisions? Consistent with the reduced managerial learning from the stock market and increased uncertainty due to higher ETFs ownership, we show that firms included in ETFs’ baskets have higher cash holdings as a precautionary response. We address endogeneity concerns through instrumental variable, dynamic generalized methods of moments, and propensity score matching methods. We identify changes in revenues, external financing, share repurchases, and net working capital as potential channels through which cash holdings increase due to higher ETFs ownership. This increase in cash holdings is associated with a positive impact on firm value.

Keywords: Exchange-traded funds (ETFs), Cash Holdings, Share Price Informativeness, Cash Value, Managerial Learning

JEL Classification: G14, G23, G32

Suggested Citation

Tosun, Onur Kemal and El Kalak, Izidin, ETFs Ownership and Corporate Cash Holdings (August 21, 2019). Available at SSRN: https://ssrn.com/abstract=3440350 or http://dx.doi.org/10.2139/ssrn.3440350

Onur Kemal Tosun

Cardiff Business School - Accounting and Finance Section ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Izidin El Kalak (Contact Author)

Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

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