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A Re‐Examination of Shareholder Wealth Effects of Calls of Convertible Preferred Stock
Author(s) -
MAIS ERIC L.,
MOORE WILLIAM T.,
ROGERS RONALD C.
Publication year - 1989
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1989.tb02661.x
Subject(s) - dividend , shareholder , convertible , voting , common stock , valuation effects , convertible bond , valuation (finance) , stock (firearms) , monetary economics , abnormal return , business , financial economics , economics , share price , accounting , stock exchange , finance , corporate governance , paleontology , mechanical engineering , context (archaeology) , structural engineering , politics , political science , law , engineering , biology , debt
Common stock price reactions to announcements of 67 calls of in‐the‐money convertible preferred stocks are examined, and a significant average abnormal return of −1.6 percent is documented. The finding is robust to the choice of estimation period and the assumed return‐generating process. Annual dividend obligations for the called preferred issues in the sample typically are greater than the dividends for the common shares into which they are converted, and announcement‐period abnormal returns are negatively correlated with changes in dividends. Moreover, calls that result in dilution of voting rights appear to have greater adverse valuation effects than calls that do not alter voting rights concentration.