Do Companies Buy S&P500 Membership? A new working paper attempts to figure out why some companies make it into the blue-chip stock market index.

In recent years there has been a huge shift away from active asset management and towards passive, index-tracking funds. The indices that these funds follow have in turn gained enormous power, becoming gatekeepers to the flow of trillions of dollars.

Names like S&P Dow Jones, FTSE Russell and MSCI are the biggest index providers and earn huge revenues from charging funds licensing fees. But a new scandal questions the integrity of Standard & Poor’s - the provider of one of the most tracked indices.

A working paper recently published by the National Bureau of Economic Research found that companies that bought credit ratings from S&P Global’s rating business were statistically more likely to be included in the S&P 500.

S&P argues that the paper, which has not been peer-reviewed, is “flawed” and misleading about the index’s eligibility rules and methodology. S&P also insists that it has a strict separation of business lines. To be sure, some of the paper’s claims may seem overdone, given that S&P is a major player in both the credit rating and index-provision business. A company may naturally seek a credit rating to assist in its expansion efforts that would in any case propel it into the index.

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