Catering for security types: the case of warrants

Abstract

Purpose

The purpose of this paper is to assess whether the decision to issue warrants in an initial public offering (IPO) is subject to catering influences.

Design/methodology/approach

The approach used was to measure the market “warrant premium” and assess whether it relates to the probability of firms including warrants in their IPOs.

Findings

The evidence is strongly supportive of a catering influence on the firm's decision to include warrants in its IPO.

Practical implications

Sentiment is a factor in the selection of what securities a firm sells at its IPO. The findings lend further credence to the pervasiveness of catering.

Originality/value

No prior study has examined the role that catering plays in the selection of types of securities to sell.

Citation

Howe, J.S. and Nikolic, B. (2012), "Catering for security types: the case of warrants", Review of Behavioral Finance, Vol. 4 No. 1, pp. 28-45. https://doi.org/10.1108/19405971211261092