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The issuance of warrants in rights offerings: Agency costs and signaling effects

Author

Listed:
  • Balasingham Balachandran

    (Department of Economics and Finance, La Trobe University, Bundoora, VIC, Australia)

  • Sutharson Kanapathippillai

    (Department of Accounting, Deakin University, Burwood, VIC, Australia)

  • Chandrasekhar Krishnamurti

    (University of Southern Queensland, Toowoomba, QLD, Australia; University of South Australia, Adelaide, SA, Australia)

  • Michael Theobald

    (University of Birmingham, Birmingham, UK; Mifranthe Associates, Warwick, UK)

  • Eswaran Velayutham

    (University of Southern Queensland, Toowoomba, QLD, Australia)

Abstract

We examine the issuance choice across rights issues of equity, unit offerings, and standalone warrants and investigate the market reactions to these issue types. We find that agency costs, growth opportunities, and current funding needs relative to assets in place are prime drivers of the type of equity issuance choice. Managers use quality signals such as underpricing, underwriting status, and the proportion of funds raised by exercising warrants in determining the features of the warrant issue. Furthermore, we document that the market reacts more favorably to standalone warrants issues than units and equity during the rights offering period.

Suggested Citation

  • Balasingham Balachandran & Sutharson Kanapathippillai & Chandrasekhar Krishnamurti & Michael Theobald & Eswaran Velayutham, 2017. "The issuance of warrants in rights offerings: Agency costs and signaling effects," Australian Journal of Management, Australian School of Business, vol. 42(4), pages 608-636, November.
    • Handle: RePEc:sae:ausman:v:42:y:2017:i:4:p:608-636
    DOI: 10.1177/0312896216682062
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    2. Melia, Adrian & Chan, Howard & Docherty, Paul & Easton, Steve, 2018. "Explanations of cycles in seasoned equity offerings: An examination of the choice between rights issues and private placements," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 16-25.

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    More about this item

    Keywords

    Agency cost; Australia; equity; issuance choice; rights offerings; signaling; unit offerings; warrants;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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