Research

B. Lin, K. Tan, L. Zhang: Do Exchange Traded Funds Affect Corporate Cash Holdings?

August 1, 2019

We examine the effects of corporate ownership by exchange traded funds (ETFs) on corporate cash holdings. Using a panel regression, we show that firms increase their cash holdings to hedge against higher anticipated stock risks induced by ETFs. To establish a causality interpretation, we use the exogenous changes to membership in the Russell index as an instrument for ETF ownership. We further show that shareholders place a higher value on additional cash held by firms with higher ETF ownership and these findings are more pronounced in financially constrained firms and good governance firms.