Warrant Exercise, Dividends, and Reinvestment Policy
Abstract
This paper examines sequential exercise strategies by warrant holders and the gain from hoarding w arrants. Several obstacles to acquiring large blocks to exploit seque ntial strategies are analyzed. First, several reinvestment policies a re identified for which sequential exercise is not advantageous, ther eby eliminating the gain from hoarding. However, sequential exercise strategies may be advantageous for monopoly or oligopoly warrant hold ers, even absent dividends, because using exercise proceeds to repurc hase stock or to expand the firm's scale increases the riskiness of e quity. Second, oligopoly warrant holders can receive a smaller warran t value than perfectly competitive warrant holders, suggesting a pote ntial cost to unsuccessful hoarding. Copyright 1988 by American Finance Association.Download Info
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Bibliographic Info
Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 43 (1988)
Issue (Month): 2 (June)
Pages: 493-506
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Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Hanke, Michael & Potzelberger, Klaus, 2002. "Consistent pricing of warrants and traded options," Review of Financial Economics, Elsevier, vol. 11(1), pages 63-77.
- Darsinos, T. & Satchell, S.E., 2002. "On the Valuation of Warrants and Executive Stock Options: Pricing Formulae for Firms with Multiple Warrants/Executive Options," Cambridge Working Papers in Economics 0218, Faculty of Economics, University of Cambridge.
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