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The Valuation Effects of Warrant Extensions


  • Howe, John S
  • Wei, Peihwang


In this paper, the authors examine the warrant price and stock price reactions to the announcement of warrant life extensions. As predicted by option-pricing theory, warrant prices increase in response to an extension. The authors' principal finding is that the stocks of firms making the extension announcements experience positive abnormal returns on average. They interpret the evidence as supportive of an anticipation hypothesis in which the market perceiv es the decision to extend the warrants' expiration date as a favorable indication for the stock price before the subsequent expiration. Copyright 1993 by American Finance Association.

Suggested Citation

  • Howe, John S & Wei, Peihwang, 1993. " The Valuation Effects of Warrant Extensions," Journal of Finance, American Finance Association, vol. 48(1), pages 305-314, March.
  • Handle: RePEc:bla:jfinan:v:48:y:1993:i:1:p:305-14

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    References listed on IDEAS

    1. Gordon, Roger H. & Varian, Hal R., 1989. "Taxation of asset income in the presence of a world securities market," Journal of International Economics, Elsevier, vol. 26(3-4), pages 205-226, May.
    2. Auerbach, Alan J, 1991. "Retrospective Capital Gains Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 167-178, March.
    3. Roger H. Gordon & Joel Slemrod, 1988. "Do We Collect Any Revenue from Taxing Capital Income?," NBER Chapters,in: Tax Policy and the Economy: Volume 2, pages 89-130 National Bureau of Economic Research, Inc.
    4. Giovannini, Alberto & Hines Jr, James R, 1990. "Capital Flight and Tax Competition: Are there Viable Solutions to Both Problems," CEPR Discussion Papers 416, C.E.P.R. Discussion Papers.
    5. Findlay, Christopher C, 1986. "Optimal Taxation of International Income Flows," The Economic Record, The Economic Society of Australia, vol. 62(177), pages 208-214, June.
    6. Roger H. Gordon, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 567-586.
    7. Bond, Eric W & Samuelson, Larry, 1989. "Strategic Behaviour and the Rules for International Taxation of Capital," Economic Journal, Royal Economic Society, vol. 99(398), pages 1099-1111, December.
    8. Razin, A. & Sadka, E., 1989. "Capital Market Integration: Issues Of International Taxation," Papers 40-89, Tel Aviv.
    9. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    10. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
    11. Hans-Werner Sinn, 1990. "Can Direct and Indirect Taxes Be Added for International Comparisons of Competitiveness?," NBER Working Papers 3263, National Bureau of Economic Research, Inc.
    12. Gordon, Roger & Kalambokidis, Laura & Slemrod, Joel, 2004. "Do we now collect any revenue from taxing capital income?," Journal of Public Economics, Elsevier, vol. 88(5), pages 981-1009, April.
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    Cited by:

    1. Howe, John S. & Su, Tie, 2001. "Discretionary reductions in warrant exercise prices," Journal of Financial Economics, Elsevier, vol. 61(2), pages 227-252, August.
    2. Darsinos, T. & Satchell, S.E., 2002. "On the Valuation of Warrants and Executive Stock Options: Pricing Formulae for Firms with Multiple Warrants/Executive Options," Cambridge Working Papers in Economics 0218, Faculty of Economics, University of Cambridge.
    3. Hauser, Shmuel & Lauterbach, Beni, 1996. "Empirical tests of the Longstaff extendible warrant model," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 1-14, May.

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