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Stock Price Management and Share Issuance: Evidence from Equity Warrants

53 Pages Posted: 28 Apr 2017 Last revised: 9 Dec 2017

Mary E. Barth

Stanford University - Graduate School of Business

Kurt H. Gee

Stanford University - Graduate School of Business

Doron Israeli

IDC Herzliya - Arison School of Business

Ron Kasznik

Stanford Graduate School of Business

Date Written: December 8, 2017

Abstract

The question we address is whether firms manage stock prices prior to share issuances. Prior literature largely interprets negative returns following share issuances as evidence of market timing. Other studies interpret similar evidence as firms managing investor expectations. Although these are not mutually exclusive explanations, establishing expectations management as an explanation for the returns requires that 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, and thus stock prices, prior to share issuances. We find evidence consistent with firms managing stock prices to induce (prevent) warrant exercise when issuing the new shares is anti-dilutive (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 results.

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 (December 8, 2017). 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 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 Gee

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305
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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