Abstract
Options trading activity can affect firm debt structure decisions by stimulating informed trading that improves the informational environment in which firms raise debt capital. We find supporting evidence, at both the extensive and intensive margin, that firms with actively traded options are able to shift from bank to public debt financing. We provide cross-sectional evidence that the shift from bank financing reflects reduced demand for the special role that banks play in ex ante information collection and ex post monitoring for firms with greater information asymmetry. Instrumental variable analysis and three quasi-natural experiments support a causal interpretation of our findings.
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