Information Spillover and Corporate Policies: The Case of Listed Options

Gennaro Bernile | Jianfeng Hu | Guangzhong Li | Roni Michaely

Nov 27, 2025

Key Takeaways

Research Question: Does improved information quality via options listings lead firms to alter financing, investment, payout, and innovation decisions?
Method: Using a regression discontinuity design combined with an instrumental variable based on SEC listing rules, the study identifies the impact of options availability on firms’ financing, investment, payout, and innovation policies between 1996 and 2019.
Findings
- Options listing enhances firms’ access to external finance, with both equity and debt issuances increasing, though equity issuance responds more strongly. This shift toward equity leads to a measurable decline in financial leverage.
- Firms reduce dividends and share repurchases after options become available, consistent with a diminished need to signal quality through payouts.
- On the asset side, capital expenditures and cash holdings both rise, while innovation output and quality improve, as reflected in higher patent citations and greater investment efficiency.
Implication: The findings highlight that derivatives markets act as informational infrastructure, producing positive spillovers that enhance the efficiency of corporate finance and investment beyond the trading floor.

Source Publication:

Bernile, G., Hu, J., Li, G., & Michaely, R. (2025). Information Spillover and Corporate Policies: The Case of Listed Options. Journal of Financial and Quantitative Analysis, 60(1), 447–481.

Background and Research Question

Corporate finance theory predicts that the quality of a firm’s information environment shapes both its access to external capital and its investment strategy. Yet, isolating the causal effect of information quality is challenging because standard measures—analyst coverage, institutional ownership, and disclosure quality—are often endogenously linked to firm behavior.

This study focuses on a quasi-exogenous shock to a firm’s information environment: the introduction of exchange-listed options. Options listings are significant and frequent events that exchanges—not the firms—decide. They provide publicly observable signals about a firm’s value and risk, thereby reducing information asymmetry. The research asks, “Does improved information quality via options listings lead firms to alter financing, investment, payout, and innovation decisions?”

Data and Methodology

The study merges data from CRSP, Compustat, and OptionMetrics for 1996–2019, covering 6,050 firm-years with listed options and 31,944 without. Financial and utilities firms and those with total assets or sales below $1 million were excluded.

To establish causality, the authors combine the following:

Regression Discontinuity Design (RDD): They exploit SEC eligibility thresholds for options listing, such as minimum public float, trading volume, shareholder count, and stock price. Firms just above and below these cutoffs are comparable, making the assignment to options listing quasi-random.
Instrumental Variable (IV): They use an indicator for meeting the SEC criteria as an instrument, isolating the effect of options availability from other firm characteristics.

Two natural experiments validate the approach: the 1973 opening of the CBOE and the 2003 SEC rule change lowering minimum stock price requirements. Both confirm observed effects arise from options availability rather than confounding factors.

Findings

The results reveal consistent and economically meaningful effects of options availability on both corporate financing and investment behavior.

#1 Financing and Payout Policies

Listed options significantly improve firms’ ability to raise external funds. Equity issuances increase by 7%–10.6% and debt issuances by 4.7%–10.2% relative to the unconditional mean. Because the impact on equity is stronger, financial leverage falls by 2.3%–3.3% on average.

At the same time, firms reduce both dividends and share repurchases, consistent with a reduced need to use payouts as signals of firm quality once information asymmetry declines. These shifts in financing and payout jointly reinforce the deleveraging effect of options introduction.

Stock market reactions also change meaningfully: the announcement returns for equity offerings become less negative, whereas those for repurchases become less positive, reflecting a more efficient information environment in which such announcements convey less incremental information.

#2 Investment and Innovation

Improved informational efficiency extends to the asset side of the balance sheet. Following options listing, capital expenditures rise by 1.7%–4.2% and cash holdings by 1.9%–3.8%, consistent with reduced financing frictions and increased investment flexibility. Importantly, investment efficiency improves: higher investment–q sensitivity shows firms allocate capital more in line with their growth opportunities.

Firms with listed options also produce higher-quality patents ty, with a significant increase in average patent citations, suggesting more transparent information environments support riskier, high-impact R&D. These effects are most pronounced among smaller, younger, and more opaque firms—those with low analyst coverage, low institutional ownership, or a high probability of informed trading—where information asymmetry was initially most severe.

Policy and Market Implications

The study demonstrates financial innovations, such as options markets, generate positive real-economy spillovers. By improving transparency and price informativeness, listed options reduce agency costs, facilitate monitoring, and allow firms to make more efficient financing and investment choices.

Policymakers should recognize derivatives markets provide benefits beyond trading efficiency: they enhance capital allocation, innovation, and corporate resilience. For managers and investors, improvements in the information environment—whether through market mechanisms or policy interventions—can meaningfully shape strategic decisions.

In essence, listed options act as informational infrastructure, with value extending far beyond the trading floor. These findings underscore the broader social and economic significance of financial market innovations, emphasizing their impact cannot be measured solely through trading activity.