Discretionary reductions in warrant exercise prices

Managers can decide to reduce a warrant’s exercise price. A reduction in exercise price can induce exercise (a conversion-forcing reduction) or not (a long-term reduction). Conversionforcing firms show an abnormal return of -1.53% on the announcement day but they perform well over the three years following the announcement. This finding suggests that the funds raised from warrant exercise are invested in profitable projects. Long-term reductions show an abnormal return of -1.15% on the announcement day. These firms also perform well following the reduction, which suggests that the lower exercise price restores managerial incentives. Discretionary reductions in warrant exercise prices Barringer Resources Inc. said it reduced the exercise price on its class B warrants to $2.25 from $4.03, effective today, for the next 30 days. On March 13 the exercise price will revert back to $4.03. –Dow Jones News Retrieval, February 11, 1991, 10:42 a.m.