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) |
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Pages (from-to) | 227-252 |
Number of pages | 26 |
Journal | Journal of Financial Economics |
Volume | 61 |
Issue number | 2 |
DOIs | |
State | Published - Aug 2001 |
Keywords
- Equity financing
- Exercise price
- G32
- Managerial flexibility
- Security design
- Warrants
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management