ETF Ownership and Corporate Investment
|Speaker:||Antoniou Constantinos, University of Warwick|
|Date: ||Friday 30 November 2018|
|Location: ||Kolade teaching room, Building: one|
We examine whether ownership by exchange traded funds (ETFs) affects the relation between real investment and Tobin’s Q. Recent studies show that the stock prices of companies included in ETF baskets are more noisy; due to this effect, the managers of firms highly-owned by ETFs should rely less stock prices for information, which, inturn, should weaken the investment-Q relation for such firms. The results reliably confirm the hypothesis. To address endogeneity, we estimate an instrumental variable model based on S&P500 index additions, and find that the results continue to hold. The sensitivity of dividends to prices is higher for firms that are heavily ETF-owned, which suggests that managers pay money out to shareholders foregoing growth opportunities. Operating performance is less sensitive to stock prices for higher ETF-owned firms, which suggests that the effect of ETF ownership on the sensitivity of corporate policies to stock prices is to make the link between stock price and future performance more tenuous.