Options Trading and Corporate Debt Structure

60 Pages Posted: 10 Feb 2020 Last revised: 7 Mar 2022

See all articles by Jie Cao

Jie Cao

The Hong Kong Polytechnic University - School of Accounting and Finance

Michael G. Hertzel

Arizona State University (ASU) - Finance Department

Jie Xu

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Xintong Zhan

Department of Finance, School of Management, Fudan University

Date Written: March 5, 2022

Abstract

Options trading activity can affect firm debt structure decisions by stimulating informed trading that improves the informational environment in which firms raise debt capital. We find supporting evidence, at both the extensive and intensive margin, that firms with actively traded options are able to shift from bank to public debt financing. We provide cross-sectional evidence that the shift from bank financing reflects reduced demand for the special role that banks play in ex ante information collection and ex post monitoring for firms with greater information asymmetry. Instrumental variable analysis and three quasi-natural experiments support a causal interpretation of our findings.

Keywords: Debt structure; options trading; new debt choice; information asymmetry

JEL Classification: G32; G21; G12; G14

Suggested Citation

Cao, Jie and Hertzel, Michael G. and Xu, Jie and Zhan, Xintong, Options Trading and Corporate Debt Structure (March 5, 2022). Available at SSRN: https://ssrn.com/abstract=3520403 or http://dx.doi.org/10.2139/ssrn.3520403

Jie Cao

The Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom, Kowloon
Hong Kong

HOME PAGE: http://sites.google.com/site/jiejaycao

Michael G. Hertzel (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-6869 (Phone)
602-965-8539 (Fax)

Jie Xu

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Hong Kong

HOME PAGE: http://sites.google.com/site/jiejessicaxu/

Xintong Zhan

Department of Finance, School of Management, Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

HOME PAGE: http://sites.google.com/view/xintongzhan

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