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Articles 1 - 30 of 700
Full-Text Articles in Finance and Financial Management
Bank Competition Amid Digital Disruption: Implications For Financial Inclusion, Erica Xuewei Jiang, Gloria Yang Yu, Jinyuan Zhang
Bank Competition Amid Digital Disruption: Implications For Financial Inclusion, Erica Xuewei Jiang, Gloria Yang Yu, Jinyuan Zhang
Research Collection Lee Kong Chian School Of Business
We examine how digital disruption affects bank competition using the staggered rollout of 3G mobile networks. 3G expansion increased mobile banking adoption among tech-savvy households, reducing branch networks—especially in younger counties. Banks' strategies diverged: Less branch-reliant banks closed branches and competed on price, while more branch-reliant banks maintained branches but raised spreads. A structural model shows that perceived digital service improvements among younger consumers drove these shifts, reducing welfare for older savers. Counterfactuals demonstrate that subsidizing adoption for older savers can cost-effectively reduce these disparities, facilitating a smoother digital transition.
Settlement Manipulation In Prediction Markets, David Dai, Ruizhe Jia, Shihao Yu
Settlement Manipulation In Prediction Markets, David Dai, Ruizhe Jia, Shihao Yu
Research Collection Lee Kong Chian School Of Business
Prediction markets increasingly list contracts settling on an asset price that holders can move by trading the underlying. We build a model showing that such contracts transfer wealth from prediction-market liquidity traders to manipulators and harm price discovery in the underlying, even as it becomes more liquid. After the launch of Polymarket's five-minute Bitcoin contract, settlement-time spot order flow spikes, causing large price reversals after settlement. Manipulators capture a large amount of profit, mostly from retail. Manipulation is largely absent in the fifteen-minute contracts: lengthening the contract horizon removes it, providing the market-design remedy our model and evidence support.
Queuing Uncertainty Of Limit Orders, Bart Yueshen Zhou
Queuing Uncertainty Of Limit Orders, Bart Yueshen Zhou
Research Collection Lee Kong Chian School Of Business
Limit orders submitted around the same time are subject to random latencies and will be queued accordingly. In equilibrium, end-of-queue limit orders always lose money—the liquidity supply appears excessive. The model generates empirical predictions regarding such “overshooting” liquidity: (i) new limit orders appear fleeting—clustered submissions are followed by immediate cancellations, (ii) the resulting cancel-to-add count ratio reflects adverse selection, and (iii) the cancel-to-add size ratio measures high-frequency market-making activity. Welfare can be hurt by the overshooting liquidity if it induces excessive speculation. Overall, the model contributes to a more comprehensive understanding and better utilization of order book data.
Price Discovery On Decentralized Exchanges, Agostino Capponi, Ruizhe Jia, Shihao Yu
Price Discovery On Decentralized Exchanges, Agostino Capponi, Ruizhe Jia, Shihao Yu
Research Collection Lee Kong Chian School Of Business
Decentralized exchanges (DEXs) allow traders to express their willingness to pay for quick execution through a public priority fee bidding mechanism. We provide evidence that high-fee DEX trades are more informative and contribute more to price discovery. Using address-level blockchain transaction data, we show that informed traders persistently bid higher fees to secure early execution, revealing a strong willingness to pay for execution priority. Further, analysis of Ethereum mempool data demonstrates that informed traders employ a “jump bidding” strategy, placing high initial bids to deter potential competitors.
Nominal Prices, Retail Investor Participation, And Return Momentum, Jun Du, Dashan Huang, Yu-Jane Liu, Yushui Shi, Avanidhar Subrahmanyam, Huacheng Zhang
Nominal Prices, Retail Investor Participation, And Return Momentum, Jun Du, Dashan Huang, Yu-Jane Liu, Yushui Shi, Avanidhar Subrahmanyam, Huacheng Zhang
Research Collection Lee Kong Chian School Of Business
We employ an identification strategy for retail participation to explore the link between return momentum and investing clientele. This scheme relies on strictly enforced round-lot rules in China, which financially constrain retail investors from participating in stocks with high nominal prices. We find that there is strong momentum in high-priced stocks, but no momentum on aggregate. This result supports the idea that noise trades of retail investors mask momentum, while other, more sophisticated investors contribute to momentum. We validate this notion by showing that retail investors with small (large) portfolios are less (more) prone to participating in stocks with high …
Old Signals, New Era: Reconsidering How Customer Satisfaction And Employee Satisfaction Impact Shareholder Wealth, Cesar Zamudio, Suyun Mah, Vanitha Swaminathan
Old Signals, New Era: Reconsidering How Customer Satisfaction And Employee Satisfaction Impact Shareholder Wealth, Cesar Zamudio, Suyun Mah, Vanitha Swaminathan
Research Collection Lee Kong Chian School Of Business
Extant research suggests that higher levels of customer and employee satisfaction signal a firm’s competitive advantage, resulting in greater firm value. This article advances the understanding of how firms can manage customer satisfaction and employee satisfaction to increase shareholder wealth in a new environment due to the emergence of social media and a new class of retail investors. Drawing from stakeholder theory and signaling theory, we argue that inconsistency in customer satisfaction and employee satisfaction can be informative to investors and lead to greater shareholder wealth in such a new environment. Our findings demonstrate that there is a negative joint …
There Is No One-Size-Fits-All Approach To Sovereign Finance, Guan Seng Khoo, Annie Koh
There Is No One-Size-Fits-All Approach To Sovereign Finance, Guan Seng Khoo, Annie Koh
Research Collection Lee Kong Chian School Of Business
In a commentary, SMU Professor Emeritus of Finance (Practice) Annie Koh and Khoo Guan Seng, Asia-Pacific advisory council member of the SWF Academy and EU-Asean Centre, opined that in a volatile world, the strength of a sovereign wealth fund lies in its ability to fulfil its specific, sovereign purpose. Prof Koh and Mr Khoo said that sovereign wealth funds are bespoke instruments of national policy, and in the world of sovereign capital, one size does not, and cannot, fit all. They noted that each fund is a reflection of a country’s unique ambitions, its resource endowments and its specific fears …
Agency Mbs As Safe Assets, Zhiguo He, Zhaogang Song
Agency Mbs As Safe Assets, Zhiguo He, Zhaogang Song
Research Collection Lee Kong Chian School Of Business
Measured as yield spreads against Treasury securities and AAA corporate bonds, the convenience premium of newly issued agency MBS averages more than half of the long-term Treasury convenience premium. The agency MBS convenience premium and issuance amount vary negatively with mortgage rate, consistent with a prepayment-driven channel. Placing agencies into conservatorship in 2008 and introducing liquidity regulations in 2013 significantly affected MBS convenience premium, consistent with government guarantee and regulatory treatment channels. Analyses of dispersion of dealers’ prepayment forecasts, seasoned MBS, and investors’ MBS holdings deliver further economic implications for agency MBS as safe assets.
A Social Norm Perspective On Distorted Information In China, Zhe Li, Massimo Massa, Nianhang Xu, Hong Zhang
A Social Norm Perspective On Distorted Information In China, Zhe Li, Massimo Massa, Nianhang Xu, Hong Zhang
Research Collection Lee Kong Chian School Of Business
Can social norms give rise to distorted information in China? We observe that China’s leading social norm related to alcohol consumption and social drinking enhance earnings management. An analysis of toxic alcohol scandals supports a causal interpretation. Further evidence suggests that the influence of alcohol may come from the negative externality that it creates, which is propagated by corporate leaders and cannot be attenuated by market-oriented institutions. Our results reveal a social norm externality that may have important normative implications.
The Effects Of Financing Green And Brown Sectors: What Do Theories And Evidence Say?, Hao Liang, Maria Teresa Punzi
The Effects Of Financing Green And Brown Sectors: What Do Theories And Evidence Say?, Hao Liang, Maria Teresa Punzi
Research Collection Lee Kong Chian School Of Business
This paper critically examines the economic and welfare implications of financing green and brown sectors. Drawing on a comprehensive review of recent theoretical and empirical literature, we highlight that while conventional green finance—allocating capital toward environmentally friendly (“green”) sectors and away from carbon-intensive (“brown”) sectors—can promote decarbonization, it may also produce unintended externalities. In particular, it can inadvertently incentivize higher emissions from brown firms and contribute to economic disruption. Using a dynamic stochastic general equilibrium (DSGE) model, we demonstrate that lowering the cost of capital for green sectors leads to only modest reductions in emissions, whereas raising it for brown …
Policy Uncertainty Reduces Green Innovation, Mengyu Wang, Jeffrey Wurgler, Hong Zhang
Policy Uncertainty Reduces Green Innovation, Mengyu Wang, Jeffrey Wurgler, Hong Zhang
Research Collection Lee Kong Chian School Of Business
Policy uncertainty can undermine the power of government subsidies to stimulate environmentally friendly research and development. We show that Chinese firms’ green R&D falls as the uncertainty of environmental subsidies rises: Exogenous, weather-driven air pollution variability induces subsidies to fluctuate, and firms in areas with high weather-driven subsidy variability undertake less green R&D and hire fewer technical employees, controlling for the average level of subsidies. Heavy emitters and environmental technology firms are more affected. The results also illustrate how policy uncertainty can arise when policymakers are influenced by conditions that are salient but with causes that are difficult to disentangle.
Large Owner Expropriation Threat And Stock Option Pay's Effect On Firm Risk-Taking Behaviors In Weak Institutions, Cuili Qian, Lipeng (Gary) Ge, Xuesong Geng, Jiatao Li, Maria Hasenhuttl
Large Owner Expropriation Threat And Stock Option Pay's Effect On Firm Risk-Taking Behaviors In Weak Institutions, Cuili Qian, Lipeng (Gary) Ge, Xuesong Geng, Jiatao Li, Maria Hasenhuttl
Research Collection Lee Kong Chian School Of Business
Research Question/Issue: This study investigates the impact of managerial stock option pay on firm risk- taking behaviors in aweak institutional context, a critical question that has been overlooked by the literature. Specifically, we build on the comparative corporate governance perspective that emphasizes the implications of large shareholders' expropriation threat in weak institutions to develop predictions about their impact on the stock option's incentive alignment effect. We further explore the boundary conditions of such a relationship.Research Findings/Insights: Based on a sample of Chinese listed firms between 2006 and 2016, we find that a high level of large shareholders' expropriation threat weakens …
Incident-Driven Esg Engagements, Hao Liang, Yongheng Sun, T. Mandy Tham
Incident-Driven Esg Engagements, Hao Liang, Yongheng Sun, T. Mandy Tham
Research Collection Lee Kong Chian School Of Business
We examine when and why institutional investors engage portfolio firms on ESG issues using proprietary engagement records from a European asset manager. Salient negative incidents emerge as a powerful trigger—second only to firm size—because they heighten reputational accountability for investors and reveal new information about hidden ESG weaknesses, particularly at firms perceived as ESG leaders. Monitoring also extends along the supply chain: incidents at key suppliers prompt investor engagement with focal firms. Finally, engagement is associated with higher firm value, stronger ESG performance, and increased cash flows. Together, the findings illuminate the drivers and mechanisms of ESG engagement and underscore …
One Size Does Not Fit All: Contract Design In Fintech Lending, Jianfeng Hu, Changcheng Song, Gloria Yang Yu
One Size Does Not Fit All: Contract Design In Fintech Lending, Jianfeng Hu, Changcheng Song, Gloria Yang Yu
Research Collection Lee Kong Chian School Of Business
Many fintech lenders rely on standardized contract terms to support scale and operational speed. This paper examines whether modest tailoring of loan contracts can improve credit market outcomes. We conduct a randomized field experiment with a large fintech lender that varies loan due dates relative to borrowers' salary paydays. Synchronizing repayment schedules with income cycles reduces delinquency by 29.1% in the experiment and 15.7% in the administrative data. Effects concentrate among liquidity-constrained borrowers: young, low-income, and low-creditlimit individuals. Tailored repayment timing generates substantial economic benefits: borrowers save on overdue penalties, lenders accelerate cash flows, and improved repayment increases future credit …
A Transaction Cost Perspective On Option Anomalies, James O'Donovan, Gloria Yang Yu
A Transaction Cost Perspective On Option Anomalies, James O'Donovan, Gloria Yang Yu
Research Collection Lee Kong Chian School Of Business
We examine the impact of transaction costs on the profitability of long-short portfolios of delta-hedged option returns. Of the 24 portfolio sort variables studied, 17 generate positive and significant gross returns, but none remain profitable after accounting for trading costs. We propose a cost-mitigation approach that restores profitability to 7 key portfolios. Furthermore, we demonstrate that the choice of delta-hedging frequency has a first-order impact on transaction costs. Our findings underscore the central role of implementation costs in shaping the investment opportunity set in equity–option markets, highlighting the need to account for transaction costs when evaluating option-based strategies.
Exploratory Innovation: A New Perspective On Family Firms' Under-Diversification Puzzle, Po-Hsuan Hsu, Sterling Huang, Massimo Massa, Yaru Qian, Hong Zhang
Exploratory Innovation: A New Perspective On Family Firms' Under-Diversification Puzzle, Po-Hsuan Hsu, Sterling Huang, Massimo Massa, Yaru Qian, Hong Zhang
Research Collection Lee Kong Chian School Of Business
We propose a new perspective on family firms’ puzzling under-diversification in product spaces: these firms first need to succeed in exploratory innovation so they may diversify into new product markets. We construct a large database of family ownership and patent records of U.S. public firms, and show that family firms produce more exploratory patents than others, a relation that is stronger among under-diversified family firms. In addition, we find that such innovation indeed helps family firms diversify business risks. A causal interpretation of our result is supported by (i) using the property division standard in state-level divorce laws as an …
Esg News, Future Cash Flows, And Firm Value, Francois Derrien, Philipp Krüger, Augustin Landier, Tianhao Yao
Esg News, Future Cash Flows, And Firm Value, Francois Derrien, Philipp Krüger, Augustin Landier, Tianhao Yao
Research Collection Lee Kong Chian School Of Business
We investigate the expected consequences of negative environmental, social, and governance (ESG) news on firms' future profits. After learning about negative ESG news, analysts significantly downgrade their forecasts at short and longer horizons. Negative ESG news affects forecasts more strongly at longer horizons than other types of negative corporate news. The negative revisions of earnings forecasts following negative ESG news largely reflect expectations of lower future sales, rather than higher future costs. Quantitatively, forecast revisions can explain most of the negative impacts of ESG news on firm value. Analysts are correct to revise forecasts downward following negative ESG news.
Would Order-By-Order Auctions Be Competitive?, Thomas Ernst, Chester Spatt, Jian Sun
Would Order-By-Order Auctions Be Competitive?, Thomas Ernst, Chester Spatt, Jian Sun
Research Collection Lee Kong Chian School Of Business
We model two methods of executing segregated retail orders: brokers’ routing,whereby brokers allocate orders using the market maker’s overall performance, andorder-by-order auctions, where market makers bid on individual orders, a recent U.S.Securities and Exchange Commission proposal. Order-by-order auctions improve al-locative efficiency, but face a winner’s curse reducing retail investor welfare, partic-ularly when liquidity is limited. Additional market participants competing for retailorders fail to improve total efficiency and investor welfare when entrants possess in-formation superior to incumbent wholesalers. Our results hold when new entrants are less informed or the information structure differs. We also examine the cross-subsidization of brokers’ routing.
Information Production By Institutions And Information Extraction By Underwriters In Hybrid Ipo Auctions, Thomas J. Chemmanur, Pengfei Ma, Qianqian Yu
Information Production By Institutions And Information Extraction By Underwriters In Hybrid Ipo Auctions, Thomas J. Chemmanur, Pengfei Ma, Qianqian Yu
Research Collection Lee Kong Chian School Of Business
We analyze the informational properties of hybrid IPO auctions using a large and unique database of institutional bids from Chinese IPO auctions. We find strong evidence of information production by institutions about the intrinsic values of IPO firms and of underwriters extracting and using this information in IPO pricing. The IPO offer price is more sensitive to bids from institutions able to produce more precise information. In particular, the offer price is more sensitive to bids from domestic institutions, compared to bids from foreign institutions who likely have less knowledge or experience about the Chinese firms and financial market due …
Multi-Period Portfolio Allocation: A One-Shot Stochastic Optimization Approach, Peng Liu, Chyng Wen Tee, Xiaofei Xu
Multi-Period Portfolio Allocation: A One-Shot Stochastic Optimization Approach, Peng Liu, Chyng Wen Tee, Xiaofei Xu
Research Collection Lee Kong Chian School Of Business
Multi-period portfolio optimization is a central problem in finance, yet it is computationally intractable for traditional dynamic programming methods due to the curse of dimensionality. This paper develops a tractable and theoretically grounded 'one-shot' stochastic optimization framework that recasts the sequential decision problem into a single, high-dimensional optimization task. Our approach models the predictive distribution of factor returns using Gaussian Processes (GPs), allowing it to capture complex, non-linear market dynamics. We make three primary contributions. First, for the special case of a linear GP kernel, we derive an analytical solution for the optimal portfolio path, providing a clear economic interpretation …
On Sgx’S Voyage To Corporate Sustainability: Exploring Emerging Topics In Multi-Industry Corpora, Xinwen Ni, Min Bin Lin, Simon J.D. Schillebeeckx, Wolfgang Karl Hardle
On Sgx’S Voyage To Corporate Sustainability: Exploring Emerging Topics In Multi-Industry Corpora, Xinwen Ni, Min Bin Lin, Simon J.D. Schillebeeckx, Wolfgang Karl Hardle
Research Collection Lee Kong Chian School Of Business
Topic modeling and LDA (Latent Dirichlet Allocation) have proven valuable in various fields as an innovative approach to studying areas of interest and identifying topics in a dynamic content. The underlying assumption is that techniques like LDA can swiftly capture emerging topics in textual documents compared to other categorization tools. These unsupervised approaches have been used to identify new industries and technological domains. However, our study on the nascent topic of “sustainability” within the corpora of SGX-listed companies highlights clear limitations in employing techniques like LDA on sparse data. The dynamic LDA approach, also called DTM (Dynamic Topic Modelling),based on …
Capacity Investment In The Presence Of Correlated Demand And Production Resource Uncertainties And Its Implications For Financial Hedging, Onur Boyabatli, Guiyun Feng
Capacity Investment In The Presence Of Correlated Demand And Production Resource Uncertainties And Its Implications For Financial Hedging, Onur Boyabatli, Guiyun Feng
Research Collection Lee Kong Chian School Of Business
In manufacturing firms, besides demand uncertainty, capacity investment decisions may also be subject to uncertainty in the availability of a production resource (e.g., budget or commodity component) which may become constraining for manufacturing. When the production resource uncertainty is tied to a financial index (e.g., asset or commodity price), the firm can enter into financial hedging contracts at the time of capacity investment to engineer this uncertainty. Our paper characterizes the optimal capacity investment and hedging decisions and examines how production resource uncertainty impacts the firm’s decisions, profitability, and the value of hedging. We identify three key drivers of these …
The Gender Effects Of Covid: Evidence From Equity Analysts, Frank Weikai Li, Baolian Wang
The Gender Effects Of Covid: Evidence From Equity Analysts, Frank Weikai Li, Baolian Wang
Research Collection Lee Kong Chian School Of Business
We use COVID-19 and sell-side analysts as an experiment to study the effects of gender on labor productivity. We find that the forecast accuracy of female analysts declined more than that of male analysts, especially when schools were closed and among analysts who were more likely to have young children, were inexperienced, were busier, or lived in southern states of the US. Relative to male analysts, females also reduced their forecast timeliness and resorted to more heuristic forecasts but did not reduce coverage or updating frequency. Relative to pre pandemic, female analysts’ careers were more negatively affected than male analysts’. …
The Pricing Of Green Bonds And The Determinants Of The Green Bond Premium In The Asia-Pacific And European Markets, Parath Wongaree, Chiyachantana N. Chiraphol, Kuan Yong David Ding, Pattarawan Prasarnphanich, Wasin Siwasarit
The Pricing Of Green Bonds And The Determinants Of The Green Bond Premium In The Asia-Pacific And European Markets, Parath Wongaree, Chiyachantana N. Chiraphol, Kuan Yong David Ding, Pattarawan Prasarnphanich, Wasin Siwasarit
Research Collection Lee Kong Chian School Of Business
This study examines the sources of capital for sustainable development and investigates the existence of a green bond premium in both primary and secondary bond markets across the Asia-Pacific and European regions. Utilizing the robust Coarsened Exact Matching (CEM) method in conjunction with the Synthetic Minority Oversampling Technique (SMOTE), our analysis reveals a significant disparity in yields between green bonds and conventional bonds within the Asia-Pacific markets, indicating the existence of a green bond premium. In contrast, this distinction is not observed in Europe. These findings suggest that investors in the Asia-Pacific region display a willingness to accept lower yields …
Do Bank Ceos Learn From Crisis Experiences?, Gloria Yang Yu
Do Bank Ceos Learn From Crisis Experiences?, Gloria Yang Yu
Research Collection Lee Kong Chian School Of Business
Does the early-career exposure of bank CEOs to the 1980s savings and loans (S&L) crisis affect the outcomes of banks they subsequently managed? We measure the S&L crisis exposure by the bank failure rate in the states where CEOs worked during the S&L crisis. Armed with this measure, we find that banks managed by CEOs with higher S&L crisis exposure took on less risk and that these banks better survived the financial crisis of 2008. In particular, CEOs adjusted risk attitudes in areas causing the S&L crisis: their more intense crisis experience reduced banks’ interest rate risk, exposure to risky …
Covid-19 And Investors' Trading Behavior: Evidence From The New Zealand Equity Market, Finn West Wilkinson, Marinela Adriana Finta, Olena Onishchenko
Covid-19 And Investors' Trading Behavior: Evidence From The New Zealand Equity Market, Finn West Wilkinson, Marinela Adriana Finta, Olena Onishchenko
Research Collection Lee Kong Chian School Of Business
This paper examines the trading behavior of retail and institutional investors during the COVID-19 pandemic in New Zealand. Using transaction-level data, it compares how retail and institutional investors trade over the government announcements, lockdown, and reopening periods. Retail and institutional investors' trading intensifies around government announcements, which facilitates attenuating illiquidity during the lockdown. Nevertheless, while retail trading is substantially more prominent during the lockdown than over the control and reopening periods, institutional investors do not trade significantly more per se or on announcements during the lockdown but trade less during the reopening. Their trading also relates to contemporaneous returns, and …
Disaster Relief, Inc.: When Is Corporate Philanthropy Good Or Bad For Shareholders?, Hao Liang, Cara Vansteenkiste
Disaster Relief, Inc.: When Is Corporate Philanthropy Good Or Bad For Shareholders?, Hao Liang, Cara Vansteenkiste
Research Collection Lee Kong Chian School Of Business
A long-standing question in finance is why companies donate to charity, often attributing it to either managerial agency problems or strategic behavior. Based on a global sample of donation announcements by firms providing relief to disaster-affected communities, we test the relative importance of these two motives and the conditions under which each dominates. We exploit disaster-specific factors in an event study setting around corporate donation announcement dates to show that, on average, relief donations decrease returns. However, the strategic benefits of donating around salient events can mitigate these negative effects. To account for firms’ donation decisions, we rely on exogenous …
Sell-Side Analysts’ Rating Systems, Ohad Kadan, Leonardo Madureira, Rong Wang, Tzachi Zach
Sell-Side Analysts’ Rating Systems, Ohad Kadan, Leonardo Madureira, Rong Wang, Tzachi Zach
Research Collection Lee Kong Chian School Of Business
Different brokers employ a variety of stock recommendations rating systems. There are five- and three-tier systems, as well as different mappings from the economic meaning of recommendations to numerical values in popular data sets such as IBES. We show that the rating systems and their mappings have important implications on the distribution of stock recommendations, investors’ reactions to stock recommendations, the consensus and dispersion of stock recommendations, and measures of analysts’ herding and boldness. We demonstrate how one can control for the variation in rating systems in order to separate the true economic impact of recommendations from the mechanical, non-economic, …
Is Carbon Risk Priced In The Cross Section Of Corporate Bond Returns?, Tinghua Duan, Frank Weikai Li, Quan Wen
Is Carbon Risk Priced In The Cross Section Of Corporate Bond Returns?, Tinghua Duan, Frank Weikai Li, Quan Wen
Research Collection Lee Kong Chian School Of Business
This article examines the pricing of a firm’s carbon risk in the corporate bond market. Contrary to the “carbon risk premium” hypothesis, bonds of more carbon-intensive firms earn significantly lower returns. This effect cannot be explained by a comprehensive list of bond characteristics and exposure to known risk factors. Investigating sources of the low carbon alpha, we find the underperformance of bonds issued by carbon-intensive firms cannot be fully explained by divestment from institutional investors. Instead, our evidence is most consistent with investor underreaction to the predictability of carbon intensity for firm cash-flow news, creditworthiness, and environmental incidents.
Information Spillover And Corporate Policies: The Case Of Listed Options, Gennaro Bernile, Jianfeng Hu, Guangzhong Li, Roni Michaely
Information Spillover And Corporate Policies: The Case Of Listed Options, Gennaro Bernile, Jianfeng Hu, Guangzhong Li, Roni Michaely
Research Collection Lee Kong Chian School Of Business
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 …