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Warrants in Initial Public Offerings: Empirical Evidence

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  • How, Janice C Y
  • Howe, John S
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    Abstract

    We investigate why firms include warrants in their initial public offerings (IPOs). We use a data set of Australian IPOs to examine two hypotheses about the inclusion of warrants in an IPO. The agency-cost hypothesis emphasizes the need for sequential financing for relatively young firms, because sequential financing reduces the opportunities for managers to squander money on unprofitable projects. The signaling hypothesis focuses on the choice of securities as a signaling mechanism in a market characterized by information asymmetry. The evidence favors the signaling hypothesis, thus contributing to our understanding of the types of securities issued by firms. Copyright 2001 by University of Chicago Press.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 74 (2001)
    Issue (Month): 3 (July)
    Pages: 433-57

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    Handle: RePEc:ucp:jnlbus:v:74:y:2001:i:3:p:433-57

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Byoun, Soku & Moore, William T., 2003. "Stock vs. stock-warrant units: evidence from seasoned offerings," Journal of Corporate Finance, Elsevier, vol. 9(5), pages 575-590, November.
    2. Maher Kooli & Jean-Marc Suret, 2001. "The Underpricing of Initial Public Offerings: Further Canadian Evidence," CIRANO Working Papers 2001s-50, CIRANO.
    3. Alderson, Michael J. & Betker, Brian L. & Stock, Duane R., 2006. "Investment and financing activity following calls of convertible bonds," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 895-914, March.
    4. Lasfer, Meziane & Ginglinger, Edith & Gajewski, Jean-Fran├žois, 2005. "Why do Companies Include Warrants in Seasoned Equity Offerings: The case of French Unit Offerings," Economics Papers from University Paris Dauphine 123456789/2917, Paris Dauphine University.
    5. Dimovski, William & Brooks, Robert, 2004. "Do you really want to ask an underwriter how much money you should leave on the table?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(3), pages 267-280, July.
    6. Gajewski, Jean-Francois & Ginglinger, Edith & Lasfer, Meziane, 2007. "Why do companies include warrants in seasoned equity offerings?," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 25-42, March.
    7. William Dimovski & Robert Brooks, 2003. "Financial characteristics of Australian initial public offerings from 1994 to 1999," Applied Economics, Taylor & Francis Journals, vol. 35(14), pages 1599-1607.
    8. 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.
    9. Mazouz, Khelifa & Saadouni, Brahim & Yin, Shuxing, 2008. "The long-term performance of Hong Kong share-only and unit initial public offerings (IPOs)," Journal of Multinational Financial Management, Elsevier, vol. 18(3), pages 209-228, July.
    10. Bengtsson, Ola & Dai, Na, 2013. "Financial Contracts in PIPE Offerings: The Role of Expert Placement Agents," Knut Wicksell Working Paper Series 2013/7, Knut Wicksell Centre for Financial Studies, Lund University.
    11. William Dimovski & Christopher Kelly, 2004. "The Importance of Audit Committees in Initial Public Offerings," Accounting, Finance, Financial Planning and Insurance Series 2004_13, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    12. Hoa Nguyen & William Dimovski & Robert Brooks, 2007. "Underpricing, Risk Management, Hot Issue and Crowding out Effects: Evidence from the Australian Resources Sector Initital Public Offerings," Accounting, Finance, Financial Planning and Insurance Series 2007_17, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    13. William Dimovski & Simmala Philavanh & Robert Brooks, 2011. "Underwriter reputation and underpricing: evidence from the Australian IPO market," Review of Quantitative Finance and Accounting, Springer, vol. 37(4), pages 409-426, November.
    14. Dimovski, William & Brooks, Robert, 2008. "The underpricing of gold mining initial public offerings," Research in International Business and Finance, Elsevier, vol. 22(1), pages 1-16, January.

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