Effects of Warrants Trading Activity on Firm Valuation: Evidence from Chinese Securities Market

With the listed companies on Chinese Securities Market during the sample period from 2006 to 2009, by controlling the firm size, annual share turnover in the underlying stock, ROA, debt level and whether the firm pays a dividend, the relationship between warrants trading activity and firm valuation is investigated by using the multivariate regression model. Several findings are put forward: the negative effect of warrants trading volume on firm value is statistically significant and economically meaningful after controlling for other variables that may also affect firm value, and the empirical results are strong and robust in Chinese warrant market. The empirical results show that Chinese warrants market is a failed market, and warrants trading activity simply represents uninformed speculation and adds volatility to prices, then such activity may actually decrease market values. These possible explanations are due to the characteristics of Chinese warrants market: an emerging market or a failed market partly due to the existence of too many irrational investors.