ETFs Ownership and Corporate Cash Holdings
62 Pages Posted: 23 Aug 2019 Last revised: 24 Mar 2020
Date Written: August 21, 2019
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: Suggested Citation