Equity with Warrants in Private Placements


  • We gratefully acknowledge helpful comments and suggestions from Cynthia J. Campbell (the editor), two anonymous referees, and Dwight Anderson. We also thank Brenda Sanderson for help in preparing the manuscript. All remaining errors are our own. Part of the work on this paper was completed while Dalia Marciukaityte was at the University of Pennsylvania.

* Corresponding author: College of Administration and Business, P.O. Box 10318, Ruston, LA 71272; Phone: (318) 257-3593; E-mail: DMarciuk@cab.latech.edu


We examine private equity with warrant (unit) placements and compare them with private equity placements. Firms making unit placements are smaller, younger, riskier, and characterized by higher information asymmetry than equity-placing firms. Furthermore, unit-placing firms experience good pre-placement stock performance; however, their post-placement performance is poor and worse than that of equity-placing firms. We also find that very few of the placed warrants are in the money at expiration. Our results are consistent with the window of opportunity hypothesis and the theory that warrants are especially desirable to a clientele of overoptimistic investors.