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Why do Companies Include Warrants in Seasoned Equity Offerings: The case of French Unit Offerings

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  • Lasfer, Meziane
  • Ginglinger, Edith
  • Gajewski, Jean-François

Abstract

We analyse the reasons why companies issue units when they raise additional capital. In contrast to previous evidence, our results show that units are not offered to mitigate the agency conflicts or to signal security mispricing as they are predominantly issued during cold periods, in public rather than in rights offerings, and when the issue is underwritten. In contrast, the results indicate that companies choose to offer units to circumvent the offer price regulation and to underprice their seasoned equity offering so as to minimise the issue cost and the risk of failure of the issue. These results provide support for the net proceeds maximization hypothesis.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/2917.

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Date of creation: Jun 2005
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Handle: RePEc:dau:papers:123456789/2917

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Related research

Keywords: Warrants; Equity Issue; Flotation Method; Unit Offerings;

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  1. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
  2. 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.
  3. Grinblatt, Mark & Hwang, Chuan Yang, 1989. " Signalling and the Pricing of New Issues," Journal of Finance, American Finance Association, vol. 44(2), pages 393-420, June.
  4. 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.
  5. Galai, Dan & Schneller, Meir I, 1978. "Pricing of Warrants and the Value of the Firm," Journal of Finance, American Finance Association, vol. 33(5), pages 1333-42, December.
  6. Deborah J. Lucas & Robert L. McDonald, 1991. "Equity Issues and Stock Price Dynamics," NBER Working Papers 3169, National Bureau of Economic Research, Inc.
  7. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
  8. Pierre Chollet & Edith Ginglinger, 2001. "The Pricing of French Unit Seasoned Equity Offerings," European Financial Management, European Financial Management Association, vol. 7(1), pages 23-38.
  9. Chemmanur, Thomas J, 1993. " The Pricing of Initial Public Offerings: A Dynamic Model with Information Production," Journal of Finance, American Finance Association, vol. 48(1), pages 285-304, March.
  10. Soku Byoun, 2004. "Stock Performance following Seasoned Stock-Warrant Unit Offerings," The Journal of Business, University of Chicago Press, vol. 77(1), pages 75-100, January.
  11. Korajczyk, Robert A & Lucas, Deborah J & McDonald, Robert L, 1991. "The Effect of Information Releases on the Pricing and Timing of Equity Issues," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 685-708.
  12. Mark Grinblatt & Chuan Yang Hwang, . "Signalling and the Pricing of Unseasoned New Issues," Rodney L. White Center for Financial Research Working Papers 1-89, Wharton School Rodney L. White Center for Financial Research.
  13. 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.
  14. Edith Ginglinger & Jean-François Gajewski, 2002. "Seasoned equity issues in a closely held market: evidence from France," Post-Print halshs-00138293, HAL.
  15. Welch, Ivo, 1996. "Equity offerings following the IPO theory and evidence," Journal of Corporate Finance, Elsevier, vol. 2(3), pages 227-259, February.
  16. 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.
  17. Eckbo, B. Espen & Masulis, Ronald W., 1992. "Adverse selection and the rights offer paradox," Journal of Financial Economics, Elsevier, vol. 32(3), pages 293-332, December.
  18. 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.
  19. Allen, Franklin & Faulhaber, Gerald R., 1989. "Signalling by underpricing in the IPO market," Journal of Financial Economics, Elsevier, vol. 23(2), pages 303-323, August.
  20. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118.
  21. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
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