The Effect of Option Listing on Financing Decisions

57 Pages Posted: 1 Oct 2020 Last revised: 26 Oct 2020

See all articles by Eunpyo Hong

Eunpyo Hong

George Washington University

Min Park

Alabama State University - Department of Accounting and Finance

Tao-Hsien Dolly King

University of North Carolina (UNC) at Charlotte - Department of Finance

Date Written: October 25, 2020

Abstract

This paper investigates the effect of option listing on corporate financing decisions. Firms experience a significant drop in leverage, which is mainly driven by an increase in equity issues. This effect is concentrated in firms with low profitability, high information asymmetry, and active option trading. Following the option listing, newly listed firms hold more cash and engage in more acquisitions which are mainly funded by new equity issues. These findings suggest that option listing has a significant impact on financing decisions due to lower information asymmetry and that firms use the post-listing equity to build up financial slack and support a larger investment set.

Keywords: option listing, capital structure, information asymmetry, market timing

JEL Classification: G30, G32, G34

Suggested Citation

Hong, Eunpyo and Park, Min and King, Tao-Hsien Dolly, The Effect of Option Listing on Financing Decisions (October 25, 2020). Available at SSRN: https://ssrn.com/abstract=3688502 or http://dx.doi.org/10.2139/ssrn.3688502

Eunpyo Hong (Contact Author)

George Washington University ( email )

2023 G Street
Washington, DC 20052
United States

Min Park

Alabama State University - Department of Accounting and Finance ( email )

P.O. Box 271
Montgomery, AL 36101-0271
United States

Tao-Hsien Dolly King

University of North Carolina (UNC) at Charlotte - Department of Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
704-687-7652 (Phone)
704-687-6987 (Fax)

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