Stock Price Management and Share Issuance: Evidence from Equity Warrants

ABSTRACT We investigate whether firms manage stock prices in anticipation of share issuance. Warrant exercise results in share issuance and warrant expiration dates are fixed years in advance, which precludes market timing. We predict firms manage stock prices to prevent (induce) warrant exercise when exercise is dilutive (anti-dilutive) to existing shareholders. To test our prediction, we examine stock returns around warrant expiration dates. We find that the difference between out-of-the-money (OTM) and in-the-money (ITM) firms' return patterns (i.e., post-expiration minus pre-expiration returns) is positive, and OTM (ITM) firms' return pattern is positive (negative). Return patterns of three sets of pseudo warrant firms differ from patterns of warrant firms. Return patterns are stronger when more feasible price changes are required to affect warrant expiration status, and firm-issued news items is a mechanism for price management. Thus, our findings provide evidence that firms engage in stock price management in anticipation of share issuance./jats:p <jats:p>JEL Classifications: G14; G15; G32; M41./jats:p

This is the accepted manuscript version of the following article: Mary E. Barth, Kurt H. Gee, Doron Israeli, Ron Kasznik; Stock Price Management and Share Issuance: Evidence from Equity Warrants. The Accounting Review 1 September 2021; 96 (5): 31–52. doi: https://doi.org/10.2308/TAR-2017-0675.

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Work Title Stock Price Management and Share Issuance: Evidence from Equity Warrants
Access
Open Access
Creators
  1. Mary E. Barth
  2. Kurt H. Gee
  3. Doron Israeli
  4. Ron Kasznik
Keyword
  1. Warrants; Market timing; Expectations management; Share issuance
License In Copyright (Rights Reserved)
Work Type Article
Publisher
  1. American Accounting Association
Publication Date February 5, 2021
Publisher Identifier (DOI)
  1. https://doi.org/10.2308/TAR-2017-0675
Source
  1. The Accounting Review
Deposited May 09, 2022

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Version 1
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  • Created
  • Added TAR-1.pdf
  • Added Creator Mary E. Barth
  • Added Creator Kurt H. Gee
  • Added Creator Doron Israeli
  • Added Creator Ron Kasznik
  • Published
  • Updated Description Show Changes
    Description
    • <jats:title>ABSTRACT</jats:title>
    • <jats:p>We investigate whether firms manage stock prices in anticipation of share issuance. Warrant exercise results in share issuance and warrant expiration dates are fixed years in advance, which precludes market timing. We predict firms manage stock prices to prevent (induce) warrant exercise when exercise is dilutive (anti-dilutive) to existing shareholders. To test our prediction, we examine stock returns around warrant expiration dates. We find that the difference between out-of-the-money (OTM) and in-the-money (ITM) firms' return patterns (i.e., post-expiration minus pre-expiration returns) is positive, and OTM (ITM) firms' return pattern is positive (negative). Return patterns of three sets of pseudo warrant firms differ from patterns of warrant firms. Return patterns are stronger when more feasible price changes are required to affect warrant expiration status, and firm-issued news items is a mechanism for price management. Thus, our findings provide evidence that firms engage in stock price management in anticipation of share issuance.</jats:p>
    • <jats:title>ABSTRACT</jats:title> <jats:p>
    • We investigate whether firms manage stock prices in anticipation of share issuance. Warrant exercise results in share issuance and warrant expiration dates are fixed years in advance, which precludes market timing. We predict firms manage stock prices to prevent (induce) warrant exercise when exercise is dilutive (anti-dilutive) to existing shareholders. To test our prediction, we examine stock returns around warrant expiration dates. We find that the difference between out-of-the-money (OTM) and in-the-money (ITM) firms' return patterns (i.e., post-expiration minus pre-expiration returns) is positive, and OTM (ITM) firms' return pattern is positive (negative). Return patterns of three sets of pseudo warrant firms differ from patterns of warrant firms. Return patterns are stronger when more feasible price changes are required to affect warrant expiration status, and firm-issued news items is a mechanism for price management. Thus, our findings provide evidence that firms engage in stock price management in anticipation of share issuance.</jats:p>
    • <jats:p>JEL Classifications: G14; G15; G32; M41.</jats:p>
  • Updated Description Show Changes
    Description
    • <jats:title>ABSTRACT</jats:title> <jats:p>
    • <jats:title>ABSTRACT</jats:title>
    • We investigate whether firms manage stock prices in anticipation of share issuance. Warrant exercise results in share issuance and warrant expiration dates are fixed years in advance, which precludes market timing. We predict firms manage stock prices to prevent (induce) warrant exercise when exercise is dilutive (anti-dilutive) to existing shareholders. To test our prediction, we examine stock returns around warrant expiration dates. We find that the difference between out-of-the-money (OTM) and in-the-money (ITM) firms' return patterns (i.e., post-expiration minus pre-expiration returns) is positive, and OTM (ITM) firms' return pattern is positive (negative). Return patterns of three sets of pseudo warrant firms differ from patterns of warrant firms. Return patterns are stronger when more feasible price changes are required to affect warrant expiration status, and firm-issued news items is a mechanism for price management. Thus, our findings provide evidence that firms engage in stock price management in anticipation of share issuance.</jats:p>
    • <jats:p>JEL Classifications: G14; G15; G32; M41.</jats:p>
  • Updated Description Show Changes
    Description
    • <jats:title>ABSTRACT</jats:title>
    • ABSTRACT
    • We investigate whether firms manage stock prices in anticipation of share issuance. Warrant exercise results in share issuance and warrant expiration dates are fixed years in advance, which precludes market timing. We predict firms manage stock prices to prevent (induce) warrant exercise when exercise is dilutive (anti-dilutive) to existing shareholders. To test our prediction, we examine stock returns around warrant expiration dates. We find that the difference between out-of-the-money (OTM) and in-the-money (ITM) firms' return patterns (i.e., post-expiration minus pre-expiration returns) is positive, and OTM (ITM) firms' return pattern is positive (negative). Return patterns of three sets of pseudo warrant firms differ from patterns of warrant firms. Return patterns are stronger when more feasible price changes are required to affect warrant expiration status, and firm-issued news items is a mechanism for price management. Thus, our findings provide evidence that firms engage in stock price management in anticipation of share issuance.</jats:p>
    • <jats:p>JEL Classifications: G14; G15; G32; M41.</jats:p>
  • Updated Publisher Identifier (DOI) Show Changes
    Publisher Identifier (DOI)
    • 10.2308/tar-2017-0675
    • https://doi.org/10.2308/TAR-2017-0675
  • Updated Keyword Show Changes
    Keyword
    • Warrants; Market timing; Expectations management; Share issuance
  • Updated