S&P 500 Index revisited: do index inclusion announcements convey information about firms' future performance?: An article from: Quarterly Journal of Finance and Accounting

This digital document is an article from Quarterly Journal of Finance and Accounting, published by University of Nebraska-Lincoln on September 22, 2009. The length of the article is 17430 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available immediately after purchase. You can view it with any web browser.

From the author: Standard & Poor's claims that its announcements of firms' inclusion in the S&P 500 Index contain no information about future performance; nevertheless, there are well-documented positive abnormal returns that Denis et al. (2003) contend may reflect positive information concerning future earnings realizations. We replicate Denis et al., but extend the analysis to investigate whether the source of these earnings improvements can be attributed to cash flows, non-discretionary accruals, or discretionary accruals and whether the earnings surprise is associated with abnormal returns at announcement. We confirm a significant improvement in realized earnings subsequent to index inclusion, but show that improvements in earnings are mainly attributable to relatively larger discretionary accruals, as opposed to improvements in operating cash flows. Further, these accrual driven improvements are not associated with inclusion announcement abnormal returns. These results provide important extension to Denis et al. and indicate that inclusions to the S&P 500 are information-free events.

Citation Details
Title: S&P 500 Index revisited: do index inclusion announcements convey information about firms' future performance?
Author: Karel Hrazdil
Publication:Quarterly Journal of Finance and Accounting (Magazine/Journal)
Date: September 22, 2009
Publisher: University of Nebraska-Lincoln
Volume: 48 Issue: 4 Page: 79(33)

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