The effect of exercising a warrant on the firm's capital structure reduces leverage___________converting a convertible security.

Question

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Exercising a warrant involves converting it into common equity, which increases the number of outstanding shares of the firm. As a result, the firm's total equity will increase, and its debt-to-equity ratio will decrease. This means that the effect of exercising a warrant on the firm's capital structure reduces leverage, but it does so to a lesser extent than converting a convertible security, which involves both increasing the equity portion of the capital structure and decreasing the debt portion.

The Effect of Exercising a Warrant on the Firm's Capital