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This study investigates whether directors' and officers' liability insurance (D&O insurance) misleads creditors' lending decisions by examining its effect on corporate debt maturity structure. We find that purchasing D&O insurance leads to increased corporate debt maturity, and this effect is more pronounced for firms with weaker corporate governance. These results suggest that creditors may view D&O insurance as an external monitoring tool that helps improve corporate governance. However, D&O insurance induces higher firm risk, but cannot help decrease agency costs or improve firm performance, that is, it results in more severe managerial opportunism. Our findings suggest that D&O insurance, to some extent, misguides creditors' lending decisions. [ABSTRACT FROM AUTHOR]

Economic policy uncertainty (EPU) reflects more information related to exchange rate volatility than traditional macroeconomic variables do, and thus may have stronger predictive power in forecasting exchange rate volatility. Based on data from developed and developing economies (including Japan, the United Kingdom, the Euro Area, Brazil, the Russian Federation, India, and China), this paper provides in- and out-of-sample evidence that the EPU differential between two economies outperforms several macroeconomic predictors (for example, GDP growth and volatility of inflation growth) in forecasting exchange rate volatility, which is also supported by a Monte Carlo experiment. Moreover, the mechanism analysis shows that increased EPU differential is associated with increased foreign exchange trading activities and reduced bilateral trade, which helps explain the predictive power of EPU for exchange rate volatility. Furthermore, we find that EPU can predict both long- and short-run components of exchange rate volatility. Our main findings are robust after using alternative empirical proxies or controlling for endogeneity. [ABSTRACT FROM AUTHOR]

We examine the effect of Chinese OTC equity options on the underlying stock information efficiency by using the standardisation of the OTC options market as an exogenous event. The results show that, due to the tight short‐sale constraints, the introduction of OTC stock options can widen the divergence of opinion about the stock price, and thus reduce the price efficiency. The significantly lower margin‐debt ratio exhibited by optioned stocks supports the argument that OTC stock options act as a substitute for margin trading. Further analysis reveals that optioned stocks are more speculative, but there is no significant change in liquidity. [ABSTRACT FROM AUTHOR]

The literature offers contradictory views on the effect of margin‐trading activities on price efficiency. Based on data from a Chinese margin‐trading pilot programme in 2010, we separate price efficiency into information content and price‐adjustment speed and investigate the effect of margin‐trading activity on price efficiency. We find that after adding to the eligible list, pilot stocks experience a decrease in information content, but an increase in price‐adjustment speed. Furthermore, increased margin‐buying activities are associated with lower information content, but faster price adjustment. Our results reconcile the debate over the effect of margin trading on price efficiency. [ABSTRACT FROM AUTHOR]

Prior literature on the impact of margin-trading activity on stock price crashes is mixed and does not reach consensus. Using data from a Chinese margin-trading pilot programme initiated in 2010, this article employs both margin-buying and margin-covering activities to investigate the asymmetric impact on stock price crashes. We find that margin-buying activities are beneficial reducing the price crash prone, especially in bad times. In contrast, margin-covering activities amplify price crashes in both good times and bad times. [ABSTRACT FROM AUTHOR]