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

Balasingham Balachandran, Sutharson Kanapathippillai, Chandrasekhar Krishnamurti, Michael Theobald and Eswaran Velayutham
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Balasingham Balachandran: Department of Economics and Finance, La Trobe University, Bundoora, VIC, Australia
Sutharson Kanapathippillai: Department of Accounting, Deakin University, Burwood, VIC, Australia
Chandrasekhar Krishnamurti: University of Southern Queensland, Toowoomba, QLD, Australia; University of South Australia, Adelaide, SA, Australia
Michael Theobald: University of Birmingham, Birmingham, UK; Mifranthe Associates, Warwick, UK
Eswaran Velayutham: University of Southern Queensland, Toowoomba, QLD, Australia

Australian Journal of Management, 2017, vol. 42, issue 4, 608-636

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 (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:42:y:2017:i:4:p:608-636

DOI: 10.1177/0312896216682062

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