Catering for security types: the case of warrants Available to Purchase

The purpose of this paper is to assess whether the decision to issue warrants in an initial public offering (IPO) is subject to catering influences.

The approach used was to measure the market “warrant premium” and assess whether it relates to the probability of firms including warrants in their IPOs.

The evidence is strongly supportive of a catering influence on the firm's decision to include warrants in its IPO.

Sentiment is a factor in the selection of what securities a firm sells at its IPO. The findings lend further credence to the pervasiveness of catering.

No prior study has examined the role that catering plays in the selection of types of securities to sell.