| Summary: | The study documents, in general, a significant positive share price response for the Hong Kong equity warrants on the announcement date of warrant issues. The result concluded that, at least upon the announcement date, is consistent with Schultz (1993) and Mayers (1998) where the market view positively to the warrant issues. The out of the money warrants further drive the result of announcement effect of the whole sample of warrants, giving a more positive and significant price response upon the announcement of warrant issues. Firms that issue the out of the money warrant ties capital inflow to favourable new related to capital needs of the company and thus consistent with Mayers (1998) sequential financing model.
The next stage, a regression analysis model is developed based on the hypothesis of information asymmetry for Hong Kong warrant issues. The results, in general, support information asymmetry problem arise from the announcement returns, which is explained by the information asymmetry variants risk (RISK) and probability of conversion (PROB). The in the money warrants model constitute similar result as the whole sample, and it further confirmed the information asymmetry by the variant issue size (ISSUE), in explaining the announcement effect of ITM warrant issues alone. However, none of the variables are significant to explain the announcement effect of the OTM warrant issues.
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