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The Valuation Effects of Warrant Extensions

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  • Howe, John S
  • Wei, Peihwang

Abstract

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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    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.
    4. Aigbe Akhigbe & Stephen F. Borde & Ann Marie Whyte, 2003. "Does an Industry Effect Exist for Initial Public Offerings?," The Financial Review, Eastern Finance Association, vol. 38(4), pages 531-551, November.

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