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Operational Performance of Firms Added to the S&P 500 Index

Author

Listed:
  • Stoyu I. Ivanov

    (San Jose State University)

  • Kenneth Leong

    (Menlo College)

  • Janis K. Zaima

    (Menlo College)

Abstract

Although some studies have documented that there is a price increase for firms added to the S&P 500 Index other studies show mixed results. A more recent research suggests that managers are under greater scrutiny once they are added to the S&P500, and work harder to improve firm performance. They examine the earnings performance of the firms included in the S&P500 Index. We examine whether operational performance measured by net operating profits, cost of capital, and capital invested improves for these firms. Our findings show that net operating profits increases while cost of capital decreases over the same period, and capital invested increases significantly. The results imply that firms do improve operational performance; however, the outcome of the capital invested could be positive or negative, perhaps, explaining the mixed results from past studies.

Suggested Citation

  • Stoyu I. Ivanov & Kenneth Leong & Janis K. Zaima, 2014. "Operational Performance of Firms Added to the S&P 500 Index," Economics Bulletin, AccessEcon, vol. 34(1), pages 605-613.
  • Handle: RePEc:ebl:ecbull:eb-14-00117
    as

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    References listed on IDEAS

    as
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    2. Lynch, Anthony W & Mendenhall, Richard R, 1997. "New Evidence on Stock Price Effects Associated with Changes in the S&P 500 Index," The Journal of Business, University of Chicago Press, vol. 70(3), pages 351-383, July.
    3. Shleifer, Andrei, 1986. "Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-590, July.
    4. Harris, Lawrence E & Gurel, Eitan, 1986. "Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures," Journal of Finance, American Finance Association, vol. 41(4), pages 815-829, September.
    5. Beneish, Messod D & Whaley, Robert E, 1996. "An Anatomy of the "S&P Game": The Effects of Changing the Rules," Journal of Finance, American Finance Association, vol. 51(5), pages 1909-1930, December.
    6. Stoyu I. Ivanov, 2010. "Discretionary Deletions From The S&P 500 Index: Evidence On Forecasted And Realized Earnings," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(4), pages 1-9.
    7. repec:ibf:ijbfre:v:4:y:2010:i:4:p: is not listed on IDEAS
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    More about this item

    Keywords

    S&P 500 Index; Addition to S&P 500 Index; Operational Performance;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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