August 21, 2019
Do exchange-traded funds (ETFs) influence corporate cash-holding decisions? Consistent with the managerial learning channel from the stock market, we document strong evidence that firms included in ETF baskets have higher cash-holding levels. We address endogeneity concerns through instrumental variable, dynamic generalized methods of moments, and propensity score-matching methods. Further, we identify changes in revenues, external financing, share repurchases, and net working capital as potential channels through which cash holdings increase due to higher ETF ownership.