To be or not to be included in the S&P 500: cost of debt implications
Publication Date
1-1-2025
Document Type
Article
Publication Title
Managerial Finance
DOI
10.1108/MF-04-2024-0270
Abstract
Purpose: We examine the changes in a firm’s cost of debt after it is included in or removed from the S&P 500. The extant literature on index composition focuses on the cost of equity and lacks an understanding of the impacts on a firm’s cost of debt capital upon inclusion in or removal from a major stock market index. Therefore, we address the following question: Does a firm’s cost of debt change around its inclusion in or removal from the S&P 500? Design/methodology/approach: We develop two hypotheses based on the research question and use univariate and multivariate fixed-effects analyses to test them. Furthermore, to ensure robustness and address endogeneity concerns, we employ a matched control sample difference-in-difference statistical framework. Findings: Inclusion in the S&P 500 lowers a firm’s cost of debt by 0.145% and 0.200%, on average, in the six- and three-month periods after inclusion. Furthermore, after a firm is removed from the index, a firm’s cost of debt increases on average 0.380% and 0.260% in the six- and three-month periods in the post-inclusion period when compared to the pre-inclusion period. Originality/value: This study contributes novel insights into the cost of debt and index composition literature. It provides insights for academics, investors, creditors, corporate managers and index selection committees.
Keywords
Corporate debt, Cost of debt, Finance, Financial markets, Index composition, S&P 500
Department
Accounting and Finance
Recommended Citation
Matthew Faulkner, Tracie Frost, and Stoyu I. Ivanov. "To be or not to be included in the S&P 500: cost of debt implications" Managerial Finance (2025). https://doi.org/10.1108/MF-04-2024-0270
