ETF Ownership Level, ETF Ownership Volatility, and Corporate Credit Risk

This study aims to explore whether ETF ownership level and its volatility affect corporate credit risk using Taiwanese firm data from June 2003 to September 2020. The credit risk proxies used in this study include accounting-based and market-based credit risk variables, which are measured by TCRI rating and Distance to Default (DD), respectively. We find that ETF ownership level is significantly and negatively related to firm credit risk while (unwinsorized) ETF ownership volatility has an opposite effect. This study further finds that ETF ownership level is significantly and positively related to corporate disclosure quality and yet an opposite effect on equity return volatility did exist, revealing that the price discovery hypothesis is empirically supported in Taiwanese ETF market. In addition, the negative association between ETF ownership level and firm accounting-based credit risk becomes significantly weaker for firms listed in the governance-ETF components. Finally, our conclusions are still robust when considering the endogeneity problems.