Previous research suggests that offering costs are higher when warrants are used to compensate underwriters. This finding potentially arises from a failure to account for self-selection in estimating offering cost relations. Using methods that account for self-selection, I find that underpricing and total offering costs are reduced for firms using warrants as underwriter compensation, consistent with the hypothesis that issuers choose compensation contracts which minimize costs.
Journal of Financial Economics – Elsevier
Published: May 1, 1995
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