Index Creation, Information Changes, and Financing*

VIDHAN K. GOYAL, DANIEL URBAN, WENTING ZHAO

Journal of Accounting Research · 2025 · Volume 63 · Issue 5

Abstract

We study how stock index inclusion affects corporate financing using a global sample of 198 index events—primarily new index launches—across 21 markets. Firms added to indexes issue more public debt but not equity, leading to a sustained increase in leverage. Inclusion draws greater attention from analysts and the media and increases the likelihood of receiving credit ratings. As a result, indexed firms benefit from more liquid bond markets and lower yield spreads, prompting greater reliance on public debt. Consistent with an information-driven mechanism, leverage responses are strongest in countries with weaker information environments. However, these information gains do not enhance stock price informativeness: bid-ask spreads, price impact measures, post-earnings announcement drift, and the implied cost of equity remain unchanged—likely because of the growing presence of information-insensitive passive investors.

Keywords

index membership, leverage, information, stock price informativeness, cost of debt

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