Do Financial Market Developments Benefit Employees? Evidence from the Derivatives Markets

55 Pages Posted: 19 Apr 2023 Last revised: 8 May 2023

See all articles by Anastasia Richmond

Anastasia Richmond

Bayes Business School (formerly Cass), City, University of London

Dragon Yongjun Tang

The University of Hong Kong - Faculty of Business and Economics

Sarah Qian Wang

University of Warwick - Warwick Business School

Date Written: May 8, 2023

Abstract

Do financial market developments matter for rank-and-file workers? We find that equity options or credit default swaps (CDS) trading on a firm improves employee welfare ratings. The results are robust to alternative welfare outcome measures including a firm’s selection into "Best Companies to Work for", workplace safety, pay inequality and pay level. We further find that derivatives trading decreases managerial short-termism by stimulating informed trades. The derivatives trading effects on employee welfare are more pronounced in firms with high market competition, technological intensity, and analyst coverage. Firms spend more on human capital development when derivatives linked to their equity or debt are actively traded. These findings suggest that derivatives can have real effects on employee welfare by reducing managerial short-termism.

Keywords: derivatives, options, CDS, employee welfare, managerial short-termism

JEL Classification: G14, G30, J28, J30

Suggested Citation

Richmond, Anastasia and Tang, Dragon Yongjun and Wang, Sarah Qian, Do Financial Market Developments Benefit Employees? Evidence from the Derivatives Markets (May 8, 2023). Available at SSRN: https://ssrn.com/abstract=4399072 or http://dx.doi.org/10.2139/ssrn.4399072

Anastasia Richmond (Contact Author)

Bayes Business School (formerly Cass), City, University of London

106
Bunhill Row
London, EC1Y 8TZ
United Kingdom

Dragon Yongjun Tang

The University of Hong Kong - Faculty of Business and Economics ( email )

KKL 1004
Pokfulam Road
Pokfulam
Hong Kong
(852)22194321 (Phone)

Sarah Qian Wang

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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