The Information Content of Put Warrant Issues

Povel, Paul; Gibson, Scott; Singh, Rajdeep

doi:10.2139/ssrn.561021

The Information Content of Put Warrant Issues

36 Pages Posted: 4 Jul 2004

See all articles by Paul Povel

Paul Povel

University of Houston - Department of Finance, C.T. Bauer College of Business

Scott Gibson

College of William and Mary - Mason School of Business

Rajdeep Singh

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: July 2004

Abstract

We show that put warrant issues can be used to signal a firm's superior prospects to a market that is not aware of them. One benefit of using put warrants to signal, particularly for growth firms, is that a firm receives cash when sending the signal, instead of paying out cash. We establish conditions under which put warrants are issued in a separating equilibrium. We then test our theory using a new data set on put warrant issues. The data support our model: put warrant issuers strongly outperform their peers in the years after the put warrant issues.

Keywords: Put warrants, share repurchases, signaling

JEL Classification: G35, G32, D82

Suggested Citation: Suggested Citation

Povel, Paul and Gibson, George Scott and Singh, Rajdeep, The Information Content of Put Warrant Issues (July 2004). Available at SSRN: https://ssrn.com/abstract=561021 or http://dx.doi.org/10.2139/ssrn.561021