Unit IPOs: What the Warrant Characteristics Reveal about the Issuing Firm*

The non-7% solution

“…5 The mean gross spread for our unit sample is 9.68%, compared to a mean gross spread for the non-7% and 7% share-only IPOs of 8.29% and 7.0%, respectively. Consistent with previous studies (Jain, 1994;Garner and Marshall, 2005), unit offerings are significantly smaller, underwritten by lower reputation underwriters, less likely to have venture capital backing or a high reputation auditor, and are more risky, both in terms of post-IPO volatility and length of operating history than the other groups. The mean total compensation for the unit and non-7% share-only samples are 14.18% and 10.50%, respectively, reflecting the significant contribution other forms of compensation provide for these typically smaller offerings.…”

Security Design in Initial Public Offerings*

“…On the other hand, unit IPOs seem to be highly favored by firms in business services (which include computer software), engineering, health services and personal services. Similar evidence that unit IPOs tend to be used by firms in service-oriented and high-technology industries is provided by Jain (1994), by Lee, Lee and Taylor (2003) and by Garner and Marshall (2005). Also supporting this prediction is the evidence provided by Garner and Marshall (2005) that firms whose asset return volatility is higher, issue a larger number of warrants per share as part of their unit IPO.…”

“…Similar evidence that unit IPOs tend to be used by firms in service-oriented and high-technology industries is provided by Jain (1994), by Lee, Lee and Taylor (2003) and by Garner and Marshall (2005). Also supporting this prediction is the evidence provided by Garner and Marshall (2005) that firms whose asset return volatility is higher, issue a larger number of warrants per share as part of their unit IPO. In other words, these firms avoid issuing securities whose cash flows are sensitive to the value of assets in place as much as possible.…”

Financial Contracts in PIPE Offerings: The Role of Expert Placement Agents

“…Extant work on warrants describes how this deal feature can reduce informational frictions in IPOs and SEOs (Schultz, ; Jain, ; Chemmanur and Fulghieri, ; How and Howe, ; Byoun and Moore, ; Garner and Marshall, ).…”