The Valuation Effects of Warrant Extensions

John S Howe and Peihwang Wei

Journal of Finance, 1993, vol. 48, issue 1, 305-14

Abstract: In this paper, the authors examine the warrant price and stock price reactions to the announcement of warrant life extensions. As predicted by option-pricing theory, warrant prices increase in response to an extension. The authors' principal finding is that the stocks of firms making the extension announcements experience positive abnormal returns on average. They interpret the evidence as supportive of an anticipation hypothesis in which the market perceiv es the decision to extend the warrants' expiration date as a favorable indication for the stock price before the subsequent expiration. Copyright 1993 by American Finance Association.

Date: 1993
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