Exchange-listed Options and Corporate Policies

Speaker: Dr. Jianfeng Hu (Singapore Management University)

Topic:	Exchange-listed Options and Corporate Policies
Time&Date:	15:00-16:15 pm, 2019/7/8 (Monday)
Venue:	Room 619, Teaching A
Speaker:	Dr. Jianfeng Hu (Singapore Management University)
Abstract:	Options market activity may facilitate firms’ access to equity markets by making underlying prices more informative. Supporting this logic, we find that when the equity is linked to listed options, market reactions to repurchase or issuance announcements are less extreme and firms rely more on equity financing while paying lower dividends. Consistent with reduced opportunities for wasteful spending due to more informative prices, firms with listed options also carry larger cash balances, to which investors attribute higher valuations, and invest more as well as more efficiently both ex ante and ex post. Difference-in-difference and instrumental variable tests that exploit regulatory listing requirements or exogenous variation in options market activity support causal inferences. Overall, we conclude that enhanced informational efficiency of underlying prices due to options market activity leads to corporate policies reflecting reduced information asymmetries and agency conflicts between firms and investors.