The Impact of Warrants and Convertible Securities on the Systematic Risk of Common Equity

Financial Review - Tập 30 Số 4 - Trang 843-856 - 1995
Michael C. Ehrhardt1, Ronald E. Shrieves1
1University of Tennessee, Knoxville, TN 37996‐0540

Tóm tắt

AbstractThis paper addresses the relationship between the capital structure and the systematic risk of common equity for a firm whose capital structure includes convertible securities. Adding warrants to the capital structure reduces the systematic risk of equity, which is consistent with the fact that warrants dampen the volatility of equity by reducing the upside potential gains of existing stockholders. Expressions showing the impact of conversion features in debt and preferred stock on the systematic risk of equity are derived, and contrasted with the systematic risk effects of non‐convertible debt or non‐convertible preferred stock financing. Failure to incorporate conversion features may lead to serious errors in assessing the impact of financing alternatives on the risk of equity.

Từ khóa


Tài liệu tham khảo

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Thông tin
Thông tin xuất bản

Financial Review

Tập 30 Số 4

843-856

Thông tin tác giả