The impact of issuing warrant and debt on behavior of the firm's stock

Wei-Lin Xiao, Wei-Guo Zhang, Zheng Yao and Xiao-Hui Wang

Economic Modelling, 2013, vol. 31, issue C, 635-641

Abstract: Unlike options, warrant issuance changes the distribution of the stock price process. Indeed, firms issuing warrants are also debt financed. In this situation, it is natural to consider the distribution of the stock price process for a firm, which is debt–warrant combination. This paper is devoted to provide a risk-management tool, namely the stock price distribution of a firm issuing both debt and warrants. We also apply the theoretical results to the risk-management. Moreover, some empirical studies are given to illustrate the impact of issuing warrants and debt on the stock price distribution. The empirical evidence confirms the theoretical findings and shows that issuing warrants and debt has effects on the distribution of stock price processes.

Keywords: Equity warrants; Zero-coupon debt; Distribution; Debt issued with warrant; Stock price processes (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:31:y:2013:i:c:p:635-641

DOI: 10.1016/j.econmod.2013.01.007

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