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Abstract
AbstractWe examine stock price reactions to announced calls of in‐the‐money warrants and find a significant average devaluation in excess of 4 percent, consistent with the recent literature. We test theoretical predictions based on asymmetric information, agency costs, and corporate control in a cross‐sectional model of announcement‐period returns and find support for voting rights and ownership dilution as an explanation. We find evidence of some price recovery after the call announcement; however, further evidence of a liquidity‐based explanation is mixed.
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