| Paper Number | KCB-WP-2021-009 |
|---|---|
| Title | How Do Options Add Value? Evidence from the Convertible Bond Market |
| Title(Other) | |
| Author | Inmoo Lee ; Rex Wang Renjie ; Patrick Verwijmeren |
| Publisher | |
| Abstract | This paper provides evidence that the availability of individual stock options adds value to security issuers. We focus on convertible bond issues because pricing convertible bonds requires essentially the same set of information necessary to price options. Using a regression discontinuity design based on minimum stock price requirements for option listings, we find that the availability of stock options significantly affects convertible bond pricing. Listed options help issuers attract more convertible bond buyers and reduce the cost of financing. Overall, our results highlight the value relevance of the options market. |
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