The Effects And Recommendations Of Preferred Stock System Establishing In China

Preferred stock is one of the most important issues of China’s securities market in 2013. Although the preferred stock is a mature instrument in western countries, it is still a blank in China now. Establishing preferred stock market will not only bring huge reformation and tremendous innovative space to China’s securities market, but also with corresponding risks.This paper is divided into five parts to discuss effects and offer recommendations about the preference shares system when it establishes. Introduction section gives the background of the paper, significance of the article, research methods, literature reviews, research objectives, as well as innovations.Chapter 1 is an overview of preferred stock, including the definition of preferred stock, attributes of stock and bond, comparison the characteristics of preferred stock and other financial tools, and preferred stock’s classification. Chapter 2 retrospects its history. First is preferred stock’s development in the United States and other developed countries. Second is its rough fate after 1980. Chapter 3 analyzes why we need a multi-level capital market, which one want to issue preferred stock and which investors have willingness to hold it. This chapter paves the way for the next chapter. Chapter 4 discusses the effects of preference shares when they bring into China. The part describes from three angles:issuers, investors and the stock market. Chapter 5 has three parts. First analyzes risks, which include legal risks, credit risks, liquidity risks and market risks. Second part through empirical analysis proves the relationship between the price of preferred stock, the price of common stock and interest rates. Finally gives policy recommendations:policy makers should enact laws and regulations, strengthen information disclosure and improve the capital market to escort the system of preferred stock.