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Warrants in IPOs: Evidence from Hong Kong

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  • Mazouz, Khelifa
  • Saadouni, Brahim
  • Yin, Shuxing

Abstract

We examine whether the Hong Kong Stock Exchange listed firms include warrants in their initial public offerings (IPOs) to signal their quality. We show that IPOs with warrants have higher profitability and better asset utilization rates compared to IPOs without warrants. We also report evidence that after controlling for the level of retained ownership, the proportion of the firm value sold as warrants increases in firm's riskiness. The results from the self-selection model reveal that firms include warrants in their offerings to reduce underpricing relative to what it would have been in the absence of warrants. We conclude that warrants are more likely to be used for signaling purposes rather than as mechanisms to reduce the agency costs of free cash flow.

Suggested Citation

  • Mazouz, Khelifa & Saadouni, Brahim & Yin, Shuxing, 2008. "Warrants in IPOs: Evidence from Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 539-554, November.
    • Handle: RePEc:eee:pacfin:v:16:y:2008:i:5:p:539-554
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    References listed on IDEAS

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    Cited by:

    1. Khelifa Mazouz & Sam Agyei-Ampomah & Brahim Saadouni & Shuxing Yin, 2013. "Stabilization and the aftermarket prices of initial public offerings," Review of Quantitative Finance and Accounting, Springer, vol. 41(3), pages 417-439, October.
    2. Paul McGuinness, 2009. "The dual-tranche offer mechanism in Hong Kong and the characteristics of IPO subscription demand and initial return levels," Applied Financial Economics, Taylor & Francis Journals, vol. 19(21), pages 1715-1736.

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