Warrants in Initial Public Offerings: Empirical Evidence

41 Pages Posted: 29 Jun 2000

See all articles by John S. Howe

John S. Howe

University of Missouri at Columbia - Department of Finance

Janice C. Y. How

Queensland University of Technology; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2000

Abstract

We investigate why firms include warrants in their initial public offerings (IPOs). We use a dataset of Australian IPOs to examine two hypotheses about the inclusion of warrants in an IPO. The agency-cost hypothesis emphasizes the need for sequential financing for relatively young firms, because sequential financing reduces the opportunities for managers to squander money on unprofitable projects. The signaling hypothesis focuses on the choice of securities as a signaling mechanism in a market characterized by information asymmetry. The evidence favors the signaling hypothesis, thus contributing to our understanding of the types of securities issued by firms.

Suggested Citation

Howe, John S. and How, Janice C. Y., Warrants in Initial Public Offerings: Empirical Evidence (May 2000). Available at SSRN: https://ssrn.com/abstract=224442 or http://dx.doi.org/10.2139/ssrn.224442

John S. Howe (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

224 Middlebush Hall
Columbia, MO 65211
United States
573-882-5357 (Phone)
573-884-6296 (Fax)

Janice C. Y. How

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Financial Research Network (FIRN)

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

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

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