Is S&P500 membership for sale?

09:30-11:00, Friday, September 17, 2021

Tencent Meeting (Meeting ID: 140 616 974)

Dr. Xin Liu is now a senior lecturer (assistant professor) at Research School of Finance, Actuarial Studies and Statistics in Australian National University. She earned her Ph.D. in Finance from the National University of Singapore. Her research interests are in Financial Innovation and Development, Banking, Information Economics, and Chinese  Economy. Her research work has been published in Journal of Financial Economics. 

In this paper, we show S&P 500 index addition decisions exhibit a fair amount of discretion. Some of the discretion that S&P exercises may be influenced by added firms' purchases of S&P ratings. We then use two empirical settings, namely mergers between S&P500 constituents and the S&P announcement in 2002 about excluding foreign firms in S&P 500 index as exogenous shocks to firms' incentives to compete for S&P 500 membership. We find supportive evidence that firms' rating purchase behaviour is affected by the shift in incentives to be included in the index. Such effect is more pronounced for firms that are near the threshold of inclusion and during times when addition valuation increases are large. Finally, we show that firms that join the index on a discretionary basis are more likely to exhibit a deterioration in performance following the index membership. Overall, our findings provide evidence of conflict of interest in the S&P 500 index additions, and such discretionary additions are associated with negative performance consequences.

For more information of the seminar, scan the following QR code(s) to join Tencent QQ group (904 544 292) or WeChat group named "IAER Seminar (2)", please.

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