Department of Finance, Louisiana State University and Department of Economics and Finance, University of New Orleans. The paper has benefitted greatly from the comments of the editor René Stulz and an anonymous referee. The authors are responsible for any remaining errors.
The Valuation Effects of Warrant Extensions
Article first published online: 30 APR 2012
1993 The American Finance Association
The Journal of Finance
Volume 48, Issue 1, pages 305–314, March 1993
How to Cite
HOWE, J. S. and WEI, P. (1993), The Valuation Effects of Warrant Extensions. The Journal of Finance, 48: 305–314. doi: 10.1111/j.1540-6261.1993.tb04711.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
In this paper, we examine the warrant price and stock price reactions to the announcement of warrant life extensions. As predicted by option-pricing theory, warrant prices increase in response to an extension. Our principal finding is that the stocks of firms making the extension announcements experience positive abnormal returns on average. We interpret the evidence as supportive of an anticipation hypothesis in which the market perceives the decision to extend the warrants' expiration date as a favorable indication for the stock price before the subsequent expiration.