chunk1

ABSTRACT. A number of explanations have been offered to explain the market’s reaction to reconstitution of the S&P indexes. Most of these explanations have derived from theories of finance or economics. We offer an alternative explanation, one based on institutional theory. Briefly, when firms are added to an S&P index, it sends a signal that the firm has become “legitimate,” and investors are willing to pay more for its securities. Being dropped from an index does not mean that the firm has lost its “legitimacy,” however, so the market would not react. The results support this explanation. Inclusion of a firm in these indexes is associated with increases in both shareholder wealth and trading volume, while deletion of a firm shows no significant decrease in either. pp. 23–42
JEL Classification: C43, E44, L11, L25

Keywords: market reaction, S&P index, shareholder wealth, trading volume

STEVEN E. ABRAHAM
This email address is being protected from spambots. You need JavaScript enabled to view it.
State University of New York at Oswego
RAIHAN H. KHAN
This email address is being protected from spambots. You need JavaScript enabled to view it.
State University of New York at Oswego
JOHN A. MACDONALD
This email address is being protected from spambots. You need JavaScript enabled to view it.
State University of New York at Oswego

Home | About Us | Sales | Author's Page | Journals | Abstracting & Indexing | Contributors | Books | Contact | Online Access

© 2009 Addleton Academic Publishers. All Rights Reserved.

 
Joomla templates by Joomlashine