| This dissertation contains two essays that address issues concerning preferred stock. In the first essay, I study the incidence of preferred stock issuance to address two issues: (1) what influences the timing of such issues, and (2) do the influential factors suggest that firms view preferred stock as a substitute for common stock or for debt. Using a sample of U.S. preferred stock issuance from 1980 to 2002, I find that the issuance of straight preferred stock responds to bond market conditions, particularly at the short end of the maturity spectrum. Consequently my evidence is consistent with preferred stock being more of a substitute for debt than for common stock, and with managers timing the issuance of new preferred stock according to the past path of interest rates.; In the second essay, I examine the relationship between corporate governance and preferred stock ratings and yields. Using a sample of preferred stocks traded in November, 2004, I find evidence for the following conclusions. First, firms with rated issues tend to be larger and more profitable firms. Further, firms with rated issues tend to have more anti-takeover provisions and higher institutional shareholding. Second, preferred stock ratings are largely influenced by their issuer's long-term debt rating, with institutional ownership and CEO ownership adding extra explaining power. The yields of preferred stocks are affected by anti-takeover provisions, rating information together with firm specific features, such as size, profitability, systematic risk and idiosyncratic risk. |
