Warrants in Initial Public Offerings:Empirical Evidence

This paper investigates why firms include warrants in their initial public offerings (IPOs). We use a dataset of Australian IPOs to reexamine the agency-cost hypothesis, which emphasizes the need for sequential financing for relatively young firms, thus reducing the opportunities for managers to squander money on unprofitable projects. We find support for some of its implications, but not others. We also test an alternative theory that focuses on the configuration of securities as a signaling mechanism in a market characterized by information asymmetry. Here again, findings do not support all of the implications. Warrants in Initial Public Offerings: Empirical Evidence