Faculty Publications


Warrants, ownership concentration, and market liquidity

Document Type



Liquidity, Option exercises, Ownership concentration, Shareholders, Warrants

Journal/Book/Conference Title

Managerial Finance





First Page


Last Page



Purpose – Firms issuing equity securities for capital must recognize that this issuance may alter the ownership concentration of the firm. Through this change in ownership structure, the market liquidity of the firm's stock may also change, which has implications for the cost of equity capital and firm value. This paper aims to examine a specific security, the common stock purchase warrant, within this context. It also aims to posit that the decision to issue warrants has important implications for the firm's subsequent ownership structure and market liquidity. Design/methodology/approach – The paper's unique dataset of warrant-issuing firms tracks the warrants from their issue through to their exercise. Based on the study of SEOs by Kothare, the ownership concentration and market liquidity of the underlying stock prior to and following warrant exercises are measured. The paper examines the causal relations between warrant exercises and ownership changes, and between ownership changes and market liquidity. Findings – The paper shows that firms experience a statistically and economically significant decrease in ownership concentration following warrant exercises. Examining the liquidity effects of this change in ownership, it shows that market liquidity increases significantly after the exercise of warrants, consistent with the literature. The decrease in concentration following warrant exercises is experienced exclusively by firm insiders. The paper also finds that outsiders increase their holdings in firms with a high concentration of inside holdings and in firms with a low concentration of outside holdings prior to warrant exercises; that is, they use warrant offerings to increase their influence in the firm. Originality/value – This study is the first to the authors' knowledge that investigates warrants through their entire life span, and the first to examine the effects of warrant exercises on the performance and market liquidity of the firm. The results contribute to securities issuance, ownership, and liquidity literatures.


Department of Finance

Original Publication Date


DOI of published version