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Long-Run Stock and Operating Performance of Underwriter Warrants: Evidence from Seasoned Equity Offerings


  • Sung C. Bae,

    Corresponding author
    1. Department of Finance, College of Business Administration, Bowling Green State University, Bowling Green, OH, USA
    • Sung C Bae

      Department of Finance

      College of Business Administration

      Bowling Green State University

      201 BA Bldg.

      1001 E. Wooster St.

      Bowling Green

      OH 43403


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  • Kiyoung Chang,

    1. College of Business, University of South Florida Sarasota-Manatee, Sarasota, FL, USA
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  • Hoje Jo

    1. Department of Finance, Leavey School of Business, Santa Clara University, Santa Clara, CA, USA
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  • The authors acknowledge many helpful comments from Soku Byoun, Yongtae Kim, Chee K. Ng, and James S. Schallheim on the earlier version of this article. Suggestions from an anonymous referee and the editor-in-chief (Sudipto Dasgupta) of the Journal were particularly helpful to improve the exposition of our article. The usual disclaimer applies.


We examine the long-run stock and operating performance of firms issuing underwriter warrants. Using matched samples, we found significant long-run underperformance of seasoned equity offerings (SEOs) with warrant compensation, relative to SEOs with cash compensation, following offering announcements. Profitability measures of firms issuing underwriter warrants are also significantly lower over the post-offering period. In sharp contrast to these results, growth measures of warrant-issuing firms are greater for both pre- and post-offering periods. Combined together, our results suggest that underwriter warrants are offered in a way to take advantage of the higher growth potential of issuing firms in the short term, whose growth trend is, however, transitory and not materialized into higher stock or operating performance over the long-run, post-offering period. We interpret our results as suggesting that the certification effect of SEOs with warrant compensation through growth signaling does not last in the long run. We further offer a behavioral approach as explanations of the short-run outperformance of SEO firms with warrant compensation with empirical evidence supporting the Miller's divergence of opinion hypothesis.