TY - JOUR
T1 - Options listings and loan contract terms
T2 - information versus risk-shifting
AU - Do, Viet
AU - Truong, Cameron
AU - Vu, Tram
N1 - Funding Information:
The authors would like to express their gratitude for the helpful comments received from the editor (Tarun Chordia), an anonymous referee, Henk Berkman, Stephen Brown, Charles Corrado, Shane Moriarity, Michael Skully, and participants at the Monash University Brown Bag Seminar, Queensland University of Technology Research Seminar, and World Finance Conference. Errors and omissions are our sole responsibility. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.
Publisher Copyright:
© 2021
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2022/3
Y1 - 2022/3
N2 - We find that following options listings, U.S. firms enjoy an average 17 bps interest reduction in new bank loans. These savings are greater among more opaque borrowers, which provides support for the information production channel. This effect is, however, absent when the options market is illiquid or highly active. Consistent with risk-shifting, borrowers with more active options markets pay higher spreads. Post-options loans carry higher spreads than pre-options loans when managers exhibit stronger risk-shifting incentives. Options listings lead to shorter (longer) loan maturities for unrated (investment-grade) borrowers, while the influence on collateral and covenant restrictions is consistent with both channels.
AB - We find that following options listings, U.S. firms enjoy an average 17 bps interest reduction in new bank loans. These savings are greater among more opaque borrowers, which provides support for the information production channel. This effect is, however, absent when the options market is illiquid or highly active. Consistent with risk-shifting, borrowers with more active options markets pay higher spreads. Post-options loans carry higher spreads than pre-options loans when managers exhibit stronger risk-shifting incentives. Options listings lead to shorter (longer) loan maturities for unrated (investment-grade) borrowers, while the influence on collateral and covenant restrictions is consistent with both channels.
KW - Asymmetric information
KW - Contract term
KW - Loan spread
KW - Options listing
KW - Options trading
KW - Risk shifting
UR - http://www.scopus.com/inward/record.url?scp=85107067615&partnerID=8YFLogxK
U2 - 10.1016/j.finmar.2021.100647
DO - 10.1016/j.finmar.2021.100647
M3 - Article
AN - SCOPUS:85107067615
SN - 1386-4181
VL - 58
JO - Journal of Financial Markets
JF - Journal of Financial Markets
M1 - 100647
ER -