{"title":"Options trading and firm investment efficiency","authors":"Charles Hsu, Junqiang Ke, Zhiming Ma, Lufei Ruan","doi":"10.1111/jbfa.12789","DOIUrl":null,"url":null,"abstract":"<p>We examine the effect of options trading on an optioned firm's investment decisions. We find that active options trading improves an optioned firm's investment efficiency, and that this effect holds under several alternative empirical specifications and identification strategies, including fixed-effects models, different matching methods, an instrumental variable approach, a Granger causality test and a quasi-natural experiment based on the listing decisions of the options exchanges. This relation is mediated by two factors, namely, information asymmetry and uncertainty, consistent with the notion that options trading improves investment efficiency by providing information that facilitates external monitoring and managerial learning. The results of cross-sectional analyses indicate that the effect of options trading on investment efficiency increases with firms’ tendency to overinvest or underinvest, and with managers’ risk-taking and learning incentives. We also demonstrate that the effect of options markets on investment efficiency is distinct from the effect of stock markets. Overall, our findings suggest that options trading plays a nonnegligible role in improving an optioned firm's investment efficiency.</p>","PeriodicalId":48106,"journal":{"name":"Journal of Business Finance & Accounting","volume":"51 9-10","pages":"2410-2451"},"PeriodicalIF":2.2000,"publicationDate":"2024-01-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Business Finance & Accounting","FirstCategoryId":"91","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/jbfa.12789","RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We examine the effect of options trading on an optioned firm's investment decisions. We find that active options trading improves an optioned firm's investment efficiency, and that this effect holds under several alternative empirical specifications and identification strategies, including fixed-effects models, different matching methods, an instrumental variable approach, a Granger causality test and a quasi-natural experiment based on the listing decisions of the options exchanges. This relation is mediated by two factors, namely, information asymmetry and uncertainty, consistent with the notion that options trading improves investment efficiency by providing information that facilitates external monitoring and managerial learning. The results of cross-sectional analyses indicate that the effect of options trading on investment efficiency increases with firms’ tendency to overinvest or underinvest, and with managers’ risk-taking and learning incentives. We also demonstrate that the effect of options markets on investment efficiency is distinct from the effect of stock markets. Overall, our findings suggest that options trading plays a nonnegligible role in improving an optioned firm's investment efficiency.
期刊介绍：
Journal of Business Finance and Accounting exists to publish high quality research papers in accounting, corporate finance, corporate governance and their interfaces. The interfaces are relevant in many areas such as financial reporting and communication, valuation, financial performance measurement and managerial reward and control structures. A feature of JBFA is that it recognises that informational problems are pervasive in financial markets and business organisations, and that accounting plays an important role in resolving such problems. JBFA welcomes both theoretical and empirical contributions. Nonetheless, theoretical papers should yield novel testable implications, and empirical papers should be theoretically well-motivated. The Editors view accounting and finance as being closely related to economics and, as a consequence, papers submitted will often have theoretical motivations that are grounded in economics. JBFA, however, also seeks papers that complement economics-based theorising with theoretical developments originating in other social science disciplines or traditions. While many papers in JBFA use econometric or related empirical methods, the Editors also welcome contributions that use other empirical research methods. Although the scope of JBFA is broad, it is not a suitable outlet for highly abstract mathematical papers, or empirical papers with inadequate theoretical motivation. Also, papers that study asset pricing, or the operations of financial markets, should have direct implications for one or more of preparers, regulators, users of financial statements, and corporate financial decision makers, or at least should have implications for the development of future research relevant to such users.
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