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Information Spillover and Corporate Policies: The Case of Listed Options

Published online by Cambridge University Press:  17 October 2023

Gennaro Bernile ,
Jianfeng Hu Open the ORCID record for Jianfeng Hu [Opens in a new window] ,
Guangzhong Li  and
Roni Michaely
Gennaro Bernile
Affiliation:
University of Miami Miami Herbert Business School g.bernile@miami.edu
Jianfeng Hu*
Affiliation:
Singapore Management University Lee Kong Chian School of Business
Guangzhong Li
Affiliation:
Sun Yat-sen University Business School liguangzhong@mail.sysu.edu.cn
Roni Michaely
Affiliation:
Hong Kong University HKU Business School ronim@hku.hk
*
jianfenghu@smu.edu.sg (corresponding author)
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Abstract

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Information production associated with derivatives markets is not a sideshow; rather, it has significantly positive spillover effects on an array of corporate decisions of underlying firms. Using a regression-discontinuity design based on exogenous variation in options availability as an instrument for changes in the information environment, we show that options introductions have causal effects on corporate policies on both sides of the balance sheet. Through improved information efficiency, options availability reduces the need for debt and payout, increases efficient investment, and yields superior innovation. We conduct two independent experiments demonstrating that our instrument’s impact is not derived from alternative channels.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 35
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful to Rui Albuquerque, Kerry Back, Efraim Benmelech, Yixin Chen, Espen Eckbo, Thierry Foucault, Fangjian Fu, Ron Kaniel, Roger Loh, Evgeny Lyandres, Christian Opp, Paolo Pasquariello, Johan Sulaeman, Jun Tu, Rossen Valknov, Cong Wang, Rong Wang, John Wei, Bart Zhou, Margaret Zhu, and seminar participants at Chinese University of Hong Kong (Shenzhen), Fudan University, Hong Kong Baptist University, National University of Singapore, Shanghai Jiaotong University, Singapore Management University, University of Alabama, University of Luxembourg, University of Miami, University of Rochester, SMU Finance Summer Research Camp, 2020 FMA Conference, and Sun Yat-sen University Finance Conference, 2019 for helpful comments and valuable suggestions. Jianfeng Hu acknowledges the financial support from the Ministry of Education of Singapore and the Lee Kong Chian Fellowship. Guangzhong Li acknowledges the financial support from the Major Project of both the National Social Science Foundation (21&ZD143).

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