Abstract
Managers can decide to reduce a warrant's exercise price. A reduction in exercise price can induce exercise (a conversion-forcing reduction) or not (a long-term reduction). Conversion-forcing firms show an abnormal return of -1.53% on the announcement day but they perform well over the three years following the announcement. This finding suggests that the funds raised from warrant exercise are invested in profitable projects. Long-term reductions show an abnormal return of -1.15% on the announcement day. These firms also perform well following the reduction, which suggests that the lower exercise price restores managerial incentives.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 227-252 |
| Number of pages | 26 |
| Journal | Journal of Financial Economics |
| Volume | 61 |
| Issue number | 2 |
| DOIs | |
| State | Published - Aug 1 2001 |
Keywords
- Equity financing
- Exercise price
- G32
- Managerial flexibility
- Security design
- Warrants
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management
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Cite this
Howe, J. S., & Su, T. (2001). Discretionary reductions in warrant exercise prices. Journal of Financial Economics, 61(2), 227-252. https://doi.org/10.1016/S0304-405X(01)00061-7