The Issuance of Warrants in Rights Offerings: Agency Costs and Signaling Effects

41 Pages Posted: 19 Jul 2010 Last revised: 17 Mar 2017

See all articles by Balasingham Balachandran

Balasingham Balachandran

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Sutharson Kanapathippillai

Deakin University - School of Accounting, Economics and Finance

Chandrasekhar Krishnamurti

University of South Australia

Michael Theobald

University of Birmingham - Department of Accounting and Finance

Eswaran Velayutham

University of Southern Queensland

Multiple version iconThere are 2 versions of this paper

Date Written: November 4, 2016

Abstract

We examine the issuance choice across rights issues of equity, unit offerings and standalone warrants and investigate the market reactions to these issue types. We find that agency costs, growth opportunities and current funding needs relative to assets in place are prime drivers of the type of equity issuance choice. Managers use quality signals such as underpricing, underwriting status and the proportion of funds raised by exercising warrants in determining the features of the warrant issue. Further, we document that the market reacts more favorably to standalone warrants issues than units and equity during the rights offering period.

Keywords: Issuance choice, rights offerings, unit offerings, warrants, equity, agency cost, signaling, Australia

JEL Classification: G14, G32

Suggested Citation

Balachandran, Balasingham and Kanapathippillai, Sutharson and Krishnamurti, Chandrasekhar and Theobald, Michael F. and Velayutham, Eswaran, The Issuance of Warrants in Rights Offerings: Agency Costs and Signaling Effects (November 4, 2016). Australian Journal of Management, Forthcoming; 2013 Financial Markets & Corporate Governance Conference ; Australian Centre for Financial Studies - Finsia Banking and Finance Conference 2010. Available at SSRN: https://ssrn.com/abstract=1645008 or http://dx.doi.org/10.2139/ssrn.1645008

Balasingham Balachandran (Contact Author)

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Sutharson Kanapathippillai

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Chandrasekhar Krishnamurti

University of South Australia ( email )

37-44 North Terrace, City West Campus
Adelaide, South Australia 5001
Australia

Michael F. Theobald

University of Birmingham - Department of Accounting and Finance ( email )

Birmingham B15 2TT
United Kingdom
0121 414 6678 (Fax)

Eswaran Velayutham

University of Southern Queensland ( email )

P.O.Box 238 Darling Heights
Toowoomba, Queensland 4350
Australia

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