Advanced Search
MyIDEAS: Login to save this article or follow this journal

Warrants in IPOs: Evidence from Hong Kong

Contents:

Author Info

  • Mazouz, Khelifa
  • Saadouni, Brahim
  • Yin, Shuxing
Registered author(s):

    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.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/B6VFF-4R5VYRR-1/2/35ce0c8800c659e70097db60530be9df
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 16 (2008)
    Issue (Month): 5 (November)
    Pages: 539-554

    as in new window
    Handle: RePEc:eee:pacfin:v:16:y:2008:i:5:p:539-554

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Initial public offering Warrants Agency costs Signaling;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Chemmanur, Thomas J. & Fulghieri, Paolo, 1997. "Why Include Warrants in New Equity Issues? A Theory of Unit IPOs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(01), pages 1-24, March.
    2. Schultz, Paul, 1993. "Unit initial public offerings *1: A form of staged financing," Journal of Financial Economics, Elsevier, vol. 34(2), pages 199-229, October.
    3. Su, Dongwei & Fleisher, Belton M., 1999. "An empirical investigation of underpricing in Chinese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 7(2), pages 173-202, May.
    4. Jain, Bharat A., 1994. "The underpricing of 'unit' initial public offerings," The Quarterly Review of Economics and Finance, Elsevier, vol. 34(3), pages 309-325.
    5. Chen, Gongmeng & Firth, Michael & Krishnan, Gopal V., 2001. "Earnings forecast errors in IPO prospectuses and their associations with initial stock returns," Journal of Multinational Financial Management, Elsevier, vol. 11(2), pages 225-240, April.
    6. Lee, Lung-Fei, 1978. "Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 415-33, June.
    7. Chan, Yue-cheong & Wei, K. C. John, 2001. "Price and volume effects associated with derivative warrant issuance on the Stock Exchange of Hong Kong," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1401-1426, August.
    8. Bradley, Daniel J. & Jordan, Bradford D., 2002. "Partial Adjustment to Public Information and IPO Underpricing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(04), pages 595-616, December.
    9. How, Janice C Y & Howe, John S, 2001. "Warrants in Initial Public Offerings: Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 74(3), pages 433-57, July.
    10. Martin Lee & Philip Lee & Stephen Taylor, 2003. "Unit initial public offerings: Staged equity or signaling mechanism?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 43(1), pages 63-85.
    11. Jacqueline L. Garner & Beverly B. Marshall, 2005. "Unit IPOs: What the Warrant Characteristics Reveal about the Issuing Firm," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1837-1858, September.
    12. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
    13. Firth, Michael & Liau-Tan, Chee Keng, 1997. "Signalling models and the valuation of new issues: An examination of IPOs in Singapore," Pacific-Basin Finance Journal, Elsevier, vol. 5(5), pages 511-526, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:16:y:2008:i:5:p:539-554. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.