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Unit IPOs: What the Warrant Characteristics Reveal about the Issuing Firm

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Listed:
  • Jacqueline L. Garner

    (Drexel University)

  • Beverly B. Marshall

    (Auburn University)

Abstract

In this paper, we test Chemmanur and Fulghieri's (1997) predictions regarding a unit IPO firm's choice of signaling mix as a function of firm riskiness. We find evidence that both the proportion of firm value sold as warrants and the percentage of underpricing is increasing in firm riskiness. Although we find some evidence at extreme levels of ownership that the fraction of equity retained is decreasing in firm riskiness, we can neither confirm nor reject this prediction. Our results provide evidence of a trade-off between the signaling choices modeled by Chemmanur and Fulghieri.

Suggested Citation

  • Jacqueline L. Garner & Beverly B. Marshall, 2005. "Unit IPOs: What the Warrant Characteristics Reveal about the Issuing Firm," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1837-1858, September.
    • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:5:p:1837-1858
    DOI: 10.1086/431444
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    Cited by:

    1. David Barker & Kiat Ying Seah & James D. Shilling, 2019. "How Big of a Lemons Market is the Secondary Market for Private Equity Real Estate Limited Partnerships?," The Journal of Real Estate Finance and Economics, Springer, vol. 59(3), pages 391-418, October.
    2. Mazouz, Khelifa & Saadouni, Brahim & Yin, Shuxing, 2008. "Warrants in IPOs: Evidence from Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 539-554, November.
    3. Garner, Jacqueline L. & Marshall, Beverly B., 2010. "The non-7% solution," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1664-1674, July.
    4. Mazouz, Khelifa & Saadouni, Brahim & Yin, Shuxing, 2008. "The long-term performance of Hong Kong share-only and unit initial public offerings (IPOs)," Journal of Multinational Financial Management, Elsevier, vol. 18(3), pages 209-228, July.
    5. Ola Bengtsson & Na Dai, 2014. "Financial Contracts in PIPE Offerings: The Role of Expert Placement Agents," Financial Management, Financial Management Association International, vol. 43(4), pages 795-832, December.

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