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Warrants in IPOs: Evidence from Hong Kong

Mazouz, Khelifa ORCID:, Saadouni, Brahim and Yin, Shuxing 2008. Warrants in IPOs: Evidence from Hong Kong. Pacific-Basin Finance Journal 16 (5) , pp. 539-554. 10.1016/j.pacfin.2007.11.003

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We examine whether the Hong Kong Stock Exchange listed firms include warrants in their initial public offerings (IPOs) to signal their quality. We show that IPOs with warrants have higher profitability and better asset utilization rates compared to IPOs without warrants. We also report evidence that after controlling for the level of retained ownership, the proportion of the firm value sold as warrants increases in firm's riskiness. The results from the self-selection model reveal that firms include warrants in their offerings to reduce underpricing relative to what it would have been in the absence of warrants. We conclude that warrants are more likely to be used for signaling purposes rather than as mechanisms to reduce the agency costs of free cash flow.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Publisher: Elsevier
ISSN: 0927-538X
Last Modified: 27 Oct 2022 08:15

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