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Warrant Financing

Published online by Cambridge University Press:  19 October 2009

Bernell K. Stone
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Extract

This article develops a criterion for comparing warrant financing with further common stock financing from the viewpoint of a firm's current stockholders. This criterion is then related to a complementary one presented by Bierman [1] and a condition is imposed on Bierman's cost of warrant financing for warrant financing to be preferred to further stock financing. Finally the article considers the limitations of these criteria and qualitatively discusses risk considerations that influence the attractiveness of warrant financing.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 11 , Issue 1 , March 1976 , pp. 143 - 153
Copyright
Copyright © School of Business Administration, University of Washington 1976

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Footnotes

*

Cornell University. The author is indebted to Harold Bierman for valuable comments on an earlier draft of this article.

References

REFERENCES

[1] Bierman, Harold Jr. “The Cost of Warrants.” Journal of Financial and Quantitative Analysis, Vol. 8 (June 1973), pp. 499–504.CrossRefGoogle Scholar
[2] Hausman, Warren L., and White, W. L.. “Theory of Option Strategy under Risk Aversion.” Journal of Financial and Quantitative Analysis, Vol. 3 (September 1968), pp. 343–358.CrossRefGoogle Scholar
[3] Poensgen, Otto H. “The Valuation of Convertible Bonds,” Parts I and II. Industrial Management Review, Vol. 7 (Fall 1965), pp. 77–92 and Vol. 7 (Spring 1966), pp. 83–98.Google Scholar
[4] Samuelson, Paul A. “Rational Theory of Warrant Pricing.” Industrial Management Review, Vol. 6 (Spring 1965), pp. 13–31.Google Scholar
[5] Samuelson, Paul A., and Merton, Robert C.. “A Complete Model of Warrant Pricing that Maximizes Utility.” Industrial Management Review, Vol. 10 (Winter 1969), pp. 17–46.Google Scholar
[6] Stone, Bernell K. “Warrant Betas and the Effect of Warrant Financing on Systematic Risk.” Cornell University Working Paper.Google Scholar