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Options Trading Activity and Corporate Social Responsibility

We propose that active options markets facilitate shareholder activism and improve informational efficiency, thereby enhancing corporate social responsibility (CSR) performance. We find supportive evidence that options trading is positively related to firms’ CSR scores. Our identification strategy relies on a quasi-natural experiment that reduces options trading costs and instrumental variable analysis. Consistent with our argument, higher options trading leads to larger holdings by long-term and socially responsible institutional investors and increases CSR activism. The options-CSR relation is concentrated on firms with better corporate governance and higher product market competition. Options trading also increases firms’ CSR investment, measured by charitable contributions.