Stock vs. stock-warrant units: evidence from seasoned offerings

Recent theories based on sequential financing and information signaling reveal a special role for warrants. Data from initial public offerings (IPOs) of stock-warrant units have been used to test the theories, and we extend the analysis to seasoned offerings. Consistent with predictions from both families of theories, we find that issues made by smaller and younger firms are more likely to involve stock-warrant units, and firms with greater stock price volatility are more likely to issue units in seasoned offerings. Moreover, firms with relatively high levels of long-term debt, and those whose issues are underwritten by less prestigious underwriters are more likely to employ stock-warrant unit financing. Consistent with information signaling, we find that firms with high managerial ownership are more likely to issue units. Firms that include warrants in their stock offerings are predicted to have experienced higher abnormal stock returns than if they had issued shares alone. Thus, consistent with both theoretical explanations, some firms can reduce capital costs by adding warrants to shares in seasoned offerings.     

Expectations Hypothesis of the Term Structure of Implied Volatility: Evidence from Foreign Currency and Stock Index Options

Using a stochastic volatility option pricing model, we showthat the implied volatilities of at-the-money options are notnecessarily unbiased and that the fixed interval time-seriescan produce misleading results. Our results do not support theexpectations hypothesis: long-term volatilities rise relativeto short-term volatilities, but the increases are not matchedas predicted by the expectations hypothesis. In addition, anincrease in the current long-term volatility relative to thecurrent short-term volatility is followed by a subsequent decline.The results are similar for both foreign currency and the S&P500 stock index options.     

Product Market Competition and Financial Decisions During a Financial Crisis

We find that in the presence of the “flight to quality” during the 2007‐2008 financial crisis, firms that depended less on external financing (or internal finance dependent (IFD) firms) prior to the crisis were able to secure additional financing and increased investments, while external finance dependent (EFD) firms significantly contracted their external financing and investments. IFD firms’ increased investments during the crisis were associated with higher market share growth, while EFD competitors lost their market share. The results indicate that firms’ financial decisions during the financial crisis are interrelated with their product market dimensions.