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. Thecredit risk proxies used in this study include accounting-based and market-based credit riskvariables, 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 furtherfinds that ETF ownership level is significantly and positively related to corporate disclosurequality 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, thenegative 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