Enhancement in a firm’s information environment via options trading and the efficiency of corporate investment

23-02-23 eperan 0 comment


Journal of Banking & Finance,

Vol 149, Apr 2023, 106809

Authors: Seraina Anagnostopoulou, Lenos Trigeorgis, Andrianos Tsekrekos


We examine the association between enhancement in a firm’s information environment via options trading and firm investment efficiency. Investment inefficiency is partly driven by information asymmetries between firm managers and capital providers, aggravating moral hazard concerns. We test whether enhancement in a firm’s information environment through higher volumes of options trading (including a natural experiment involving exogenous shocks via the Penny Pilot Program) is positively related to more efficient firm investment decisions. Our results confirm that enhanced informational efficiency via higher volumes of options trading is positively related to improvements in firm-level investment efficiency. Our findings are in line with the enhancement in the information environment stemming from options trading reducing agency and moral hazard concerns (an agency channel) and are not driven by alternative explanations such as managerial learning from informed traders or a lower cost of capital. Overall, our findings suggest that an enhanced information environment via more options trading benefits firms’ investment decisions.


Information environment enhancement

Option trading activity

Corporate investment efficiency

Under- or over-investment

Information asymmetry

Agency costs

Managerial learning