Options listings and loan contract terms: Information versus risk-shifting

We find that following options listings, U.S. firms enjoy an average 17 bps interest reduction in new bank loans. These savings are greater among more opaque borrowers, which provides support for the information production channel. This effect is, however, absent when the options market is illiquid or highly active. Consistent with risk-shifting, borrowers with more active options markets pay higher spreads. Post-options loans carry higher spreads than pre-options loans when managers exhibit stronger risk-shifting incentives. Options listings lead to shorter (longer) loan maturities for unrated (investment-grade) borrowers, while the influence on collateral and covenant restrictions is consistent with both channels.