An Empirical Investigation Of Preferred Stock Issuance By Utilities: Market Reaction And Firm Motivation

Abstract

Conventional wisdom suggests that preferred stock is a hybrid—similar to bonds in some respects and to common stock in others.  This research affirms the conventional wisdom.  Specifically, issuers of preferred stock appear to consider preferred to be equity in their adjustments toward their long-term debt-to-equity ratio.  However, other balance sheet items including total asset size and asset composition indicate that preferred stock issuers are more like debt issuers than like common equity issuers.