Stock Price Management and Share Issuance: Evidence from Equity Warrants

52 Pages Posted: 28 Apr 2017 Last revised: 12 Jun 2019

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

Kurt H. Gee

Smeal College of Business, Penn State

Doron Israeli

IDC Herzliya - Arison School of Business

Ron Kasznik

Stanford Graduate School of Business

Date Written: June 9, 2019

Abstract

We investigate whether firms manage stock prices prior to share issuances. Prior research largely interprets negative returns following share issuances as evidence of market timing. Other studies interpret similar evidence as firms managing investor expectations, and thus stock prices. Although these explanations are not mutually exclusive, establishing evidence for the expectations management explanation requires a setting in which share issuance timing is fixed. Warrant exercise can result in share issuances and warrant expiration dates are fixed years in advance. Thus, we use return patterns before and after warrant expiration dates to determine whether firms manage investor expectations prior to share issuances. Our evidence is consistent with firms managing stock prices to prevent (induce) warrant exercise when issuing the new shares is dilutive (anti-dilutive) to existing shareholders. Our findings reveal that firms engage in stock price management around equity issuance in a setting where market timing cannot explain the return patterns.

Keywords: Stock Warrants; Market Timing; Expectations Management; Share Issuances

JEL Classification: G14; G15; G32; M41

Suggested Citation

Barth, Mary E. and Gee, Kurt H. and Israeli, Doron and Kasznik, Ron, Stock Price Management and Share Issuance: Evidence from Equity Warrants (June 9, 2019). Stanford University Graduate School of Business Research Paper No. 17-34. Available at SSRN: https://ssrn.com/abstract=2959187 or http://dx.doi.org/10.2139/ssrn.2959187

Mary E. Barth

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Kurt H. Gee

Smeal College of Business, Penn State

354 Business Building
University Park, PA 16802
United States

Doron Israeli (Contact Author)

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel
+972 9 952 7673 (Phone)

Ron Kasznik

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-725-9740 (Phone)
650-725-6152 (Fax)

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