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Option trading activity and capital reallocation efficiency: Evidence from corporate restructurings

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  • Fung, Scott
  • Loveland, Robert

Abstract

We examine whether option trading enables firms to restructure more efficiently and thus achieve better economic outcomes. We find that more option trading is associated with greater operating performance and higher firm value in the years following restructuring, after controlling for other determinants of performance and value. The central findings survive the consideration of endogeneity. Our results suggest that option trading produces a feedback effect that allows for a more economically efficient allocation of capital.

Suggested Citation

  • Fung, Scott & Loveland, Robert, 2024. "Option trading activity and capital reallocation efficiency: Evidence from corporate restructurings," Finance Research Letters, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finlet:v:66:y:2024:i:c:s1544612324005671
    DOI: 10.1016/j.frl.2024.105537
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    More about this item

    Keywords

    Option trading; Mergers and acquisitions; Corporate restructuring;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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