Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

Stock Performance following Seasoned Stock‐Warrant Unit Offerings

Soku Byoun
The Journal of Business
Vol. 77, No. 1 (January 2004), pp. 75-100
DOI: 10.1086/379862
Stable URL: http://www.jstor.org/stable/10.1086/379862
Page Count: 26
  • Download PDF
  • Add to My Lists
  • Cite this Item
We're having trouble loading this content. Download PDF instead.

Abstract

Theories suggest that stock‐warrant units are used as mechanisms for reducing agency costs or signaling as a form of sequential equity financing. While there is evidence of less severe price reaction to unit offering announcements, unit offering firms underperform not only nonissuing matching firms but also similar share offering firms. The same results are found when the long‐run performance is measured relative to broad market indexes or measured by the three‐factor or four‐factor model. These findings are not consistent with the theories suggested for the roles of unit financing.

Notes and References

This item contains 42 references.

References
  • ['Asquith, Paul, and David W. Mullins, Jr. 1986. Equity issues and offering dilution. Journal of Financial Economics 15:61–89.']
  • ['Barber, Brad M., and John D. Lyon. 1997. Detecting long‐run abnormal returns: The empirical power and specification of test statistics. Journal of Financial Economics 43:341–72.']
  • ['Boemer, Ekkhart, Jim Musumeci, and Annette B. Poulsen. 1991. Event‐study methodology under conditions of event‐induced variance. Journal of Financial Economics 30:253–72.']
  • ['Brav, Alon, Christopher Creczy, and Paul A. Gompers. 2000. Is the abnormal return following equity issuances anomalous? Journal of Financial Economics 56:209–50.']
  • ['Byoun, Soku. 2000. The role of stock‐warrant units in public offerings. PhD diss., University of South Carolina.']
  • ['Byoun, Soku, and W. T. Moore. 2003. Stock vs. stock‐warrant units: Evidence from seasoned offerings. Journal of Corporate Finance 9:575–90.']
  • ['Canina, Linda, Roni Michaely, Richard Thaler, and Kent Wormack. 1998. Caveat compounder: A warning about using the daily CRSP equal‐weighted index to compute long‐run excess returns. Journal of Finance 53:403–16.']
  • ['Carhart, Mark. 1997. On persistence in mutual fund performance. Journal of Finance 52:57–82.']
  • ['Carter, Richard B., Frederick H. Dark, and Ajai K. Singh. 1998. Underwriter reputation, initial returns, and the long‐run performance of IPO stocks. Journal of Finance 53:285–311.']
  • ['Carter, Richard, and Steve Manaster. 1990. Initial public offering and underwriter reputation. Journal of Finance 45:1045–67.']
  • ['Chemmanur, Thomas J., and P. Fulghieri. 1997. Why include warrants in new equity issues? A theory of unit IPOs. Journal of Financial and Quantitative Analysis 32:1–24.']
  • ['Cohen, Kalman J., Gabriel A. Hawawini, Steven F. Maier, Robert A. Schwarts, and David K. Whitcomb. 1983. Friction in the trading process and the estimation of systematic risk. Journal of Financial Economics 12:263–78.']
  • ['Conrad, Jennifer, and Gautam Kaul. 1993. Long‐term market overreaction or biases in computed returns? Journal of Finance 48:39–63.']
  • ['Dunbar, Craig G. 1995. The use of warrants as underwriter compensation in initial public offerings. Journal of Financial Economics 38:59–78.']
  • ['Efron, B. 1979. Bootstrap method: Another look at the jackknife. Annals of Statistics 7:1–26.']
  • ['Fama, Eugene F. 1998. Market efficiency, long‐term returns, and behavioral finance. Journal of Financial Economics 49:283–306.']
  • ['Fama, Eugene F., and Kenneth R. French. 1993. Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33:3–56.']
  • ['———. 1995. Size and book‐to‐market factors in earnings and returns. Journal of Finance 50:131–55.']
  • ['How, J. C. Y., and J. S. Howe. 2001. Warrants in initial public offerings: Empirical evidence. Journal of Business 74:433–57.']
  • ['Ikenberry, David, Josef Lakonishok, and Theo Vermaelen. 1995. Market underreaction to open market share repurchases. Journal of Financial Economics 39:181–208.']
  • ['Jaffe, Jeffrey F. 1974. Special information and insider trading. Journal of Business 47:410–28.']
  • ['Jegadeesh, Narasimhan. 2000. Long‐term performance of seasoned equity offerings: Benchmark errors and biases in expectations. Financial Management 29, no. 3:5–30.']
  • ['Jensen, Michael. 1986. The agency cost of free cash flow, corporate finance, and takeovers. American Economic Review 76:323–29.']
  • ['Kothari, S. P., and Jerold B. Warner. 1997. Measuring long horizon security price performance. Journal of Financial Economics 43:301–39.']
  • ['Lee, Inmoo. 1997. Do firms knowingly sell overvalued equity? Journal of Finance 52:1439–66.']
  • ['Levis, M. 1993. The long‐run performance of initial public offerings: The U.K. experience 1980–88. Financial Management 22:28–41.']
  • ['Loughran, Tim. 1993. NYSE vs. NASDAQ return: Market microstructure or the poor performance of initial public offerings? Journal of Financial Economics 33:241–60.']
  • ['Loughran, Tim, and Jay R. Ritter. 1995. The new issues puzzle. Journal of Finance 50:23–51.']
  • ['———. 2000. Uniformly least powerful tests of market efficiency. Journal of Financial Economics 55:361–89.']
  • ['Lyon, John D., Brad M. Barber, and Chih‐Ling Tsai. 1999. Improved methods for tests of long‐run abnormal stock returns. Journal of Finance 54:165–201.']
  • ['Mandelker, Gershon. 1974. Risk and return: The case of merging firms. Journal of Financial Economics 1:303–35.']
  • ['Mikkelson, Wayne H., and M. Megan Partch. 1986. Valuation effects of security offerings and the issuance process. Journal of Financial Economics 15:31–60.']
  • ['Mitchell, Mark, and Erik Stafford. 1999. Managerial decisions and long‐term stock price performance. Center for Research in Security Prices Working Paper no. 453, Graduate School of Business, University of Chicago.']
  • ['Rangan, Srinivasan. 1998. Earnings management and the performance of seasoned equity offerings. Journal of Financial Economics 50:101–22.']
  • ['Ritter, Jay R. 1984. The “hot issue” market of 1980. Journal of Business 57:215–40.']
  • ['———. 1991. The long‐run performance of initial public offerings. Journal of Finance 46:3–27.']
  • ['Roll, Richard. 1983. On computing mean returns and the small firm premium. Journal of Financial Economics 12:371–86.']
  • ['Scholes, Myron, and Joseph Williams. 1977. Estimating betas from nonsynchronous data. Journal of Financial Economics 5:309–27.']
  • ['Schultz, Paul. 1993. Unit initial public offerings: A form of staged financing. Journal of Financial Economics 34:199–229.']
  • ['Spiess, D. Katherine, and John Affleck‐Graves. 1995. Underperformance in long‐run stock returns following seasoned equity offerings. Journal of Financial Economics 38:243–67.']
  • ['———. 1999. The long‐run performance of stock returns following debt offerings. Journal of Financial Economics 54:45–73.']
  • ['Teoh, Siew Hong, Ivo Welch, and T. J. Wong. 1998. Earnings management and the underperformance of seasoned equity offerings. Journal of Financial Economics 50:63–99.']