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Unit IPOs: What the Warrant Characteristics Reveal about the Issuing Firm

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  • Jacqueline L. Garner

    (Drexel University)

  • Beverly B. Marshall

    (Auburn University)

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    Abstract

    In this paper, we test Chemmanur and Fulghieri's (1997) predictions regarding a unit IPO firm's choice of signaling mix as a function of firm riskiness. We find evidence that both the proportion of firm value sold as warrants and the percentage of underpricing is increasing in firm riskiness. Although we find some evidence at extreme levels of ownership that the fraction of equity retained is decreasing in firm riskiness, we can neither confirm nor reject this prediction. Our results provide evidence of a trade-off between the signaling choices modeled by Chemmanur and Fulghieri.

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    Bibliographic Info

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

    Volume (Year): 78 (2005)
    Issue (Month): 5 (September)
    Pages: 1837-1858

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    Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:5:p:1837-1858

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

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    Cited by:
    1. 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.
    2. 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.
    3. Garner, Jacqueline L. & Marshall, Beverly B., 2010. "The non-7% solution," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1664-1674, July.

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