Logo
Munich Personal RePEc Archive

The Bright Side of Financial Derivatives: Options Trading and Firm Innovation

Blanco, Iván and Wehrheim, David (2016): The Bright Side of Financial Derivatives: Options Trading and Firm Innovation.

This is the latest version of this item.

[thumbnail of MPRA_paper_69239.pdf]
Preview
PDF
MPRA_paper_69239.pdf

Download (738kB) | Preview

Abstract

Do financial derivatives enhance or impede innovation? We aim to answer this question by examining the relationship between equity options markets and standard measures of firm innovation. Our baseline results show that firms with more options trading activity generate more patents and patent citations per dollar of R&D invested. We then investigate how more active options markets affect firms' innovation strategy. Our results suggest that firms with greater trading activity pursue a more creative, diverse and risky innovation strategy. We discuss potential underlying mechanisms and show that options appear to mitigate managerial career concerns that would induce managers to take actions that boost short-term performance measures. Finally, using several econometric specifications that try to account for the potential endogeneity of options trading, we argue that the positive effect of options trading on firm innovation is causal.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.