The Case Study Of Preferred Stocks In Chinese Listed Companies

A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred stocks generally have a dividend that must be paid out before dividends to common shareholders, and the stocks usually do not carry voting rights. The preferred stock was first originated in the developed western countries. For foreign mature securities markets, preferred stock is a common way of financing. There are many benefits, for example, it can optimize the company’s capital structure, enhance investor confidence, and promote the value of company stock. But the development of preferred stock is also affected by macro policies, economic environment, legal environment and other factors.Compared with western developed countries, the development of listed companies’preferred stock started lately in China. China Securities Regulatory Commission and China Banking Regulatory Commission have issued some management documents such as Preferred Stock management Approach, The Information Disclosure Standards of Listed Companies’Preferred Stock Issuance and Commercial Banks’Preferred Stock Issuance Guidance in 2014. Preferred stock provides not only new financing tools for enterprises to increase their long-term sources of funds, but also provides new fixed-income products for investors to meet the diverse needs of both sides of financing. Agricultural Bank of China issued initial$40 billion preferred stock on October 31,2014.This indicates that Chinese domestic preferred stock has taken a substantive step.With the development of the preferred stock, scholars have gradually done some deeper research. After analyzing on the literature and basic theory, this essay suggests that researches in western developed countries started early and research methods are relatively more mature. But researches on preferred stock in China started late. the theoretical researches about the foreign system of preferred stock and how to manage it in our country were mainly before 2013. The researches were combined of theories and financial practice after 2013. They thought that preferred stock has many advantages such as optimization of corporate capital structure, promoting long-term profitability, enhancing investor confidence, promoting dividends level, improving investors reward system and etc.The listed companies are divided into banking and non-banking in this essay, the essay analyzes the development of preferred stock in our country from the aspects such as purpose and issuing terms. Based on statistical analysis, the essay selects the Agricultural Bank of China and China State Construction for case study, and analyzes how preferred stock influence the companies, capital market and investors.The research results are as follows. Preferred stock broaden the financing channels and it is one of the best approaches for banks to meet regulatory capital requirements. Preferred stock is also advantageous to the enterprise to optimize capital structure, improve profit and against financial risks. In the long run, preferred stock is good for enterprises to strength long-term profitability, and also for sustainable development. From the perspective of market, preferred stock announcement can lead to positive reaction of market. And the preferred stock can meet the needs of investors who prefer fixed returns.Finally, according to the relevant conclusions, recommendations are raised to investors, listing corporations and regulators. From the perspective of investors, investor education needs to improve their understanding of the preferred stock. For listed corporation, it is suggested to strengthen the understanding and application of preferred stock. For regulators, the regulations need to be established, the related laws and institutions of preferred stocks could be completed, and the benefit of investors should be protected.The innovations of this essay are as follows. The first one is to analyze the characteristics of preferred stock in different industries by using statistical analysis, and select two representative cases. Secondly, this essay takes Agricultural Bank of China and China State Construction as typical cases to fully analyze the impact to market reaction, business management and investors. Finally, this essay uses both market indicators and financial indicators to proceed the research. The shortcoming of this essay is that individual cases cannot represent all. Different companies exist many differences, so the impact of issuing preference stock may vary.