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The long‐run stock performance of preferred stock issuers
Author(s) -
Howe John S.,
Lee Hongbok
Publication year - 2005
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2005.08.002
Subject(s) - issuer , equity (law) , debt , common stock , stock (firearms) , business , capital structure , monetary economics , economics , financial system , finance , context (archaeology) , political science , law , mechanical engineering , paleontology , biology , engineering
We examine the long‐run common stock performance of preferred stock issuers. We find that significant abnormal underperformance is present only for 1 year after the issue. For the longer term we do not find consistently significant abnormal performance. This result contrasts with substantial underperformance of common equity and debt issuers during the 3 or 5 years post‐issue. The better long‐run performance of preferred issuers relative to common equity and debt issuers is driven primarily by financial firms' motivation to issue preferred stock to satisfy regulatory requirements of capital adequacy.