| Abstract: | In this paper ad hoc procedures that employ the Black-Scholes model in the valuation of warrants are examined. Findings indicate that the Black-Scholes model unadjusted for either dividends or dilution undervalues out-of-the-money warrants with short expirations. An adjustment for dilution improves the valuation for longer-term warrants of firms that do not pay dividends. For dividend-paying firms, findings suggest that it is better to adjust for dividends than for dilution when warrants are in the money or have expirations exceeding four years. |
