Stock Price Management and Share Issuance: Evidence from Equity Warrants

52 Pages Posted: 28 Apr 2017 Last revised: 13 Sep 2021

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

Kurt H. Gee

Penn State - Smeal College of Business

Doron Israeli

IDC Herzliya - Arison School of Business; Nazarbayev University - Graduate School of Business; affiliation not provided to SSRN

Ron Kasznik

Stanford Graduate School of Business

Date Written: November 10, 2020

Abstract

We investigate whether firms manage stock prices in anticipation of share issuance. Warrant exercise results in share issuance and warrant expiration dates are fixed years in advance, which precludes market timing. We predict firms manage stock prices to prevent (induce) warrant exercise when exercise is dilutive (anti-dilutive) to existing shareholders. To test our prediction, we examine stock returns around warrant expiration dates. We find that the difference between out-of-the-money (OTM) and in-the-money (ITM) firms’ return patterns (i.e., post-expiration minus pre-expiration returns) is positive, and OTM (ITM) firms’ return pattern is positive (negative). Return patterns of three sets of pseudo warrant firms differ from patterns of warrant firms. Return patterns are stronger when more feasible price changes are required to affect warrant expiration status, and firm-issued news items is a mechanism for price management. Thus, our findings provide evidence that firms engage in stock price management in anticipation of share issuance.

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 (November 10, 2020). The Accounting Review, Vol. 96, Pages 31-52, 2021, 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

Penn State - Smeal College of Business ( email )

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)

Nazarbayev University - Graduate School of Business ( email )

53 Kabanbay Batyra Avenue
Nur-Sultan, 010000
Kazakhstan

affiliation not provided to SSRN

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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