The issuance of warrants in rights offerings: agency costs and signaling effects

Balasingham Balachandran; Sutharson Kanapathippillai; Chandrasekhar Krishnamurti; Michael Theobald; Eswaran Velayutham

doi:10.1177/0312896216682062

The issuance of warrants in rights offerings: agency costs and signaling effects

Balasingham Balachandran, Sutharson Kanapathippillai, Chandrasekhar Krishnamurti, Michael Theobald, Eswaran Velayutham

Research output: Contribution to journal › Article › Research › peer-review

11 Citations (Scopus)

Abstract

We examine the issuance choice across rights issues of equity, unit offerings, and standalone warrants and investigate the market reactions to these issue types. We find that agency costs, growth opportunities, and current funding needs relative to assets in place are prime drivers of the type of equity issuance choice. Managers use quality signals such as underpricing, underwriting status, and the proportion of funds raised by exercising warrants in determining the features of the warrant issue. Furthermore, we document that the market reacts more favorably to standalone warrants issues than units and equity during the rights offering period.

Original language	English
Pages (from-to)	608-636
Number of pages	29
Journal	Australian Journal of Management
Volume	42
Issue number	4
DOIs	https://doi.org/10.1177/0312896216682062
Publication status	Published - Nov 2017
Externally published	Yes

Keywords

Agency cost
Australia
equity
issuance choice
rights offerings
signaling
unit offerings
warrants

Access to Document

10.1177/0312896216682062

Cite this

@article{d5e77289b9674c71bd82797e2d89923c,

title = "The issuance of warrants in rights offerings: agency costs and signaling effects",

abstract = "We examine the issuance choice across rights issues of equity, unit offerings, and standalone warrants and investigate the market reactions to these issue types. We find that agency costs, growth opportunities, and current funding needs relative to assets in place are prime drivers of the type of equity issuance choice. Managers use quality signals such as underpricing, underwriting status, and the proportion of funds raised by exercising warrants in determining the features of the warrant issue. Furthermore, we document that the market reacts more favorably to standalone warrants issues than units and equity during the rights offering period.",

keywords = "Agency cost, Australia, equity, issuance choice, rights offerings, signaling, unit offerings, warrants",

author = "Balasingham Balachandran and Sutharson Kanapathippillai and Chandrasekhar Krishnamurti and Michael Theobald and Eswaran Velayutham",

note = "Funding Information: The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The authors wish to acknowledge funding provided by an Australian Research Council Discovery grant (DP0664368 and DP120101620) and the School of Accounting, Economics, and Finance, Deakin University. Publisher Copyright: {\textcopyright} 2017, {\textcopyright} The Author(s) 2017.",

year = "2017",

month = nov,

doi = "10.1177/0312896216682062",

language = "English",

volume = "42",

pages = "608--636",

journal = "Australian Journal of Management",

issn = "0312-8962",

publisher = "SAGE Publications Ltd",

number = "4",

}

TY - JOUR

T1 - The issuance of warrants in rights offerings

T2 - agency costs and signaling effects

AU - Balachandran, Balasingham

AU - Kanapathippillai, Sutharson

AU - Krishnamurti, Chandrasekhar

AU - Theobald, Michael

AU - Velayutham, Eswaran

N1 - Funding Information: The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The authors wish to acknowledge funding provided by an Australian Research Council Discovery grant (DP0664368 and DP120101620) and the School of Accounting, Economics, and Finance, Deakin University. Publisher Copyright: © 2017, © The Author(s) 2017.

PY - 2017/11

Y1 - 2017/11

N2 - We examine the issuance choice across rights issues of equity, unit offerings, and standalone warrants and investigate the market reactions to these issue types. We find that agency costs, growth opportunities, and current funding needs relative to assets in place are prime drivers of the type of equity issuance choice. Managers use quality signals such as underpricing, underwriting status, and the proportion of funds raised by exercising warrants in determining the features of the warrant issue. Furthermore, we document that the market reacts more favorably to standalone warrants issues than units and equity during the rights offering period.

AB - We examine the issuance choice across rights issues of equity, unit offerings, and standalone warrants and investigate the market reactions to these issue types. We find that agency costs, growth opportunities, and current funding needs relative to assets in place are prime drivers of the type of equity issuance choice. Managers use quality signals such as underpricing, underwriting status, and the proportion of funds raised by exercising warrants in determining the features of the warrant issue. Furthermore, we document that the market reacts more favorably to standalone warrants issues than units and equity during the rights offering period.

KW - Agency cost

KW - Australia

KW - equity

KW - issuance choice

KW - rights offerings

KW - signaling

KW - unit offerings

KW - warrants

UR - http://www.scopus.com/inward/record.url?scp=85032372695&partnerID=8YFLogxK

U2 - 10.1177/0312896216682062

DO - 10.1177/0312896216682062

M3 - Article

AN - SCOPUS:85032372695

SN - 0312-8962

VL - 42

SP - 608

EP - 636

JO - Australian Journal of Management

JF - Australian Journal of Management

IS - 4

ER -

The issuance of warrants in rights offerings: agency costs and signaling effects

Abstract

Keywords

Access to Document

Other files and links

An international study of seasoned equity offerings: long term returns, earnings management, liquidity, ownership structure, and financial crisis.

Asset Pricing, Signal Type and Overconfident Investors

Cite this

The issuance of warrants in rights offerings: agency costs and signaling effects

Abstract

Keywords

Access to Document

Other files and links

Projects

An international study of seasoned equity offerings: long term returns, earnings management, liquidity, ownership structure, and financial crisis.

Asset Pricing, Signal Type and Overconfident Investors

Cite this