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Carol Olson Houston - One of the best experts on this subject based on the ideXlab platform.
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Preferred Stock financing a survey of trends in the 1980s
Journal of Applied Business Research, 2011Co-Authors: Carol Olson Houston, Arthur L HoustonAbstract:Following major structural changes in the Preferred Stock market, a survey was undertaken to determine whether reasons for issuing Preferred Stock had changed and for what purposes it is now issued. Differences in uses between traditional and new Preferred Stock are documented. No support is found for the common generalization that convertible Preferred Stock is issued primarily for merger and acquisition activities. Reasons for issuing Preferred Stock vary by industry and whether the firm is expanding or restructuring.
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can financial markets discipline banks evidence from the markets for Preferred Stock
Journal of Applied Business Research, 2011Co-Authors: Arthur L Houston, Carol Olson HoustonAbstract:This paper explores the potential benefits of allowing greater use of money-market Preferred Stock (MMPS) in the capital structure of banking organizations. We find that banking organizations offering MMPS tend to have lower profitability and higher credit risk than institutions offering capital-market Preferred Stock. This finding is consistent with the hypothesis that markets will provide incentives, in the form of lower risk premiums, for higher default-risk institutions to offer MMPS rather than CMPS, because the auction process allows investors to adjust for any shifts in risk profiles by repricing the issue every 49 days. The finding that institution-specific risk influences the financing behavior of bank managers implies that banks are subject to a degree of market discipline.
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taxes and the choice of issuing Preferred Stock vs debt
Journal of The American Taxation Association, 2002Co-Authors: Arthur L Houston, Carol Olson HoustonAbstract:This study provides descriptive evidence on the link between a firm's expected marginal tax rate and its use of Preferred Stock as an alternative to financing with long‐term debt. Regressions are estimated on a sample of industrial firms that issued Preferred Stock and a control group, matched on industry and size, that contemporaneously issued long‐term debt. Substantial tax effects are found for a full sample of firms that issued any type of Preferred Stock, as well as a large subsample that issued only convertible Preferred Stock, frequently used to facilitate mergers and acquisitions. For the typical firm, a decrease in its expected marginal tax rate from the 75th to the 25th percentile is associated with a 33 percent increase in the likelihood it will issue Preferred Stock. This financing behavior is consistent with a goal of enhancing tax benefits.
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financing with Preferred Stock
Financial Management, 1990Co-Authors: Arthur L Houston, Carol Olson HoustonAbstract:N Significant changes occurred in the market for Preferred Stock during the 1980s. The most apparent change was the number of new types of Preferred Stock. These innovations, including various types of adjustable rate and auction rate Preferred Stock, have received considerable attention in the business and academic press (see, for example, Alderson, Brown, and Lummer [1], Finnerty [12], and Winger et al. [25]). However, because of fundamental economic developments during the 1980s, there is good reason to believe that the changes go far beyond the innovations in Preferred Stock instruments. The 1980s witnessed a highly active merger market and turbulence and regulatory change in the financial services industry that is unprecedented since the Great Depression. Also important are the recent downturn in capital expenditures by the utility industry and changes in the tax laws. Taken together, these factors have produced major shifts in the pattern of industry issuances of Preferred Stock. The theory of Preferred Stock-how Preferred Stock fits into the capital structure framework-has also undergone considerable development in the past few years. Fooladi and Roberts [13] integrate Preferred Stock into Miller's [18] "Debt and Taxes" framework. Because Preferred Stock is a tax-advantaged investment for corporate investors, positive amounts of Preferred Stock will be both supplied and demanded in a Miller equilibrium. Elmer [10] integrates the Miller equilibrium model with the tax shield uncertainty model of DeAngelo and Masulis [9]. He demonstrates how Preferred Stock interacts with nondebt tax shields to influence a firm's optimal capital structure, showing that low Preferred Stock yields effectively enable low tax rate firms to sell excess tax shields. In this way, firms can effectively achieve tax advantages similar to debt financing regardless of their present and expected tax This paper has benefitted from a workshop presentation at San Diego State as well as from helpful comments from Keith Brown, Robert Capettini, Gun-Ho Joh, Nikhil Varaiya, three anonymous reviewers, and the editor. An earlier version of this paper was presented at the FMA meeting in 1988. We are grateful for the support of the Price Waterhouse Foundation. The authors would like to thank Airung Liu for her valuable research assistance.
X U Donggen - One of the best experts on this subject based on the ideXlab platform.
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rule for Preferred Stock in china overthrow of the principle of equal shares equal rights from a comparative perspective
Frontiers of Law in China, 2016Co-Authors: X U DonggenAbstract:The principle of “equal shares, equal rights” was established by the Company Law of 1993 of the People’s Republic of China. At the initial stage only issuance of common Stocks was allowed and the issuance of Preferred Stocks was interpreted as prohibited. The Company Law of 2006 has changed the rigidity of provisions of the Company Law of 1993 and laid down the legal foundation for issuance of Preferred Stock. The Rule for Administration of the Pilot Project for Preferred Stocks released on March 21, 2014 by the China Securities Regulatory Commission started the issuance of the Preferred Stocks in the Chinese capital market. The establishment of the legal system for issuance of Preferred Stock in China is not the symbol of overthrowing the principle of “equal shares, equal rights,” but the expansion and development of the principle of “equal shares, equal rights” in a new era.
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RULE FOR Preferred Stock IN CHINA: OVERTHROW OF THE PRINCIPLE OF “EQUAL SHARES, EQUAL RIGHTS”? — FROM A COMPARATIVE PERSPECTIVE
Frontiers of Law in China, 2016Co-Authors: X U DonggenAbstract:The principle of “equal shares, equal rights” was established by the Company Law of 1993 of the People’s Republic of China. At the initial stage only issuance of common Stocks was allowed and the issuance of Preferred Stocks was interpreted as prohibited. The Company Law of 2006 has changed the rigidity of provisions of the Company Law of 1993 and laid down the legal foundation for issuance of Preferred Stock. The Rule for Administration of the Pilot Project for Preferred Stocks released on March 21, 2014 by the China Securities Regulatory Commission started the issuance of the Preferred Stocks in the Chinese capital market. The establishment of the legal system for issuance of Preferred Stock in China is not the symbol of overthrowing the principle of “equal shares, equal rights,” but the expansion and development of the principle of “equal shares, equal rights” in a new era.
Arthur L Houston - One of the best experts on this subject based on the ideXlab platform.
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Preferred Stock financing a survey of trends in the 1980s
Journal of Applied Business Research, 2011Co-Authors: Carol Olson Houston, Arthur L HoustonAbstract:Following major structural changes in the Preferred Stock market, a survey was undertaken to determine whether reasons for issuing Preferred Stock had changed and for what purposes it is now issued. Differences in uses between traditional and new Preferred Stock are documented. No support is found for the common generalization that convertible Preferred Stock is issued primarily for merger and acquisition activities. Reasons for issuing Preferred Stock vary by industry and whether the firm is expanding or restructuring.
-
can financial markets discipline banks evidence from the markets for Preferred Stock
Journal of Applied Business Research, 2011Co-Authors: Arthur L Houston, Carol Olson HoustonAbstract:This paper explores the potential benefits of allowing greater use of money-market Preferred Stock (MMPS) in the capital structure of banking organizations. We find that banking organizations offering MMPS tend to have lower profitability and higher credit risk than institutions offering capital-market Preferred Stock. This finding is consistent with the hypothesis that markets will provide incentives, in the form of lower risk premiums, for higher default-risk institutions to offer MMPS rather than CMPS, because the auction process allows investors to adjust for any shifts in risk profiles by repricing the issue every 49 days. The finding that institution-specific risk influences the financing behavior of bank managers implies that banks are subject to a degree of market discipline.
-
taxes and the choice of issuing Preferred Stock vs debt
Journal of The American Taxation Association, 2002Co-Authors: Arthur L Houston, Carol Olson HoustonAbstract:This study provides descriptive evidence on the link between a firm's expected marginal tax rate and its use of Preferred Stock as an alternative to financing with long‐term debt. Regressions are estimated on a sample of industrial firms that issued Preferred Stock and a control group, matched on industry and size, that contemporaneously issued long‐term debt. Substantial tax effects are found for a full sample of firms that issued any type of Preferred Stock, as well as a large subsample that issued only convertible Preferred Stock, frequently used to facilitate mergers and acquisitions. For the typical firm, a decrease in its expected marginal tax rate from the 75th to the 25th percentile is associated with a 33 percent increase in the likelihood it will issue Preferred Stock. This financing behavior is consistent with a goal of enhancing tax benefits.
-
financing with Preferred Stock
Financial Management, 1990Co-Authors: Arthur L Houston, Carol Olson HoustonAbstract:N Significant changes occurred in the market for Preferred Stock during the 1980s. The most apparent change was the number of new types of Preferred Stock. These innovations, including various types of adjustable rate and auction rate Preferred Stock, have received considerable attention in the business and academic press (see, for example, Alderson, Brown, and Lummer [1], Finnerty [12], and Winger et al. [25]). However, because of fundamental economic developments during the 1980s, there is good reason to believe that the changes go far beyond the innovations in Preferred Stock instruments. The 1980s witnessed a highly active merger market and turbulence and regulatory change in the financial services industry that is unprecedented since the Great Depression. Also important are the recent downturn in capital expenditures by the utility industry and changes in the tax laws. Taken together, these factors have produced major shifts in the pattern of industry issuances of Preferred Stock. The theory of Preferred Stock-how Preferred Stock fits into the capital structure framework-has also undergone considerable development in the past few years. Fooladi and Roberts [13] integrate Preferred Stock into Miller's [18] "Debt and Taxes" framework. Because Preferred Stock is a tax-advantaged investment for corporate investors, positive amounts of Preferred Stock will be both supplied and demanded in a Miller equilibrium. Elmer [10] integrates the Miller equilibrium model with the tax shield uncertainty model of DeAngelo and Masulis [9]. He demonstrates how Preferred Stock interacts with nondebt tax shields to influence a firm's optimal capital structure, showing that low Preferred Stock yields effectively enable low tax rate firms to sell excess tax shields. In this way, firms can effectively achieve tax advantages similar to debt financing regardless of their present and expected tax This paper has benefitted from a workshop presentation at San Diego State as well as from helpful comments from Keith Brown, Robert Capettini, Gun-Ho Joh, Nikhil Varaiya, three anonymous reviewers, and the editor. An earlier version of this paper was presented at the FMA meeting in 1988. We are grateful for the support of the Price Waterhouse Foundation. The authors would like to thank Airung Liu for her valuable research assistance.
Ronald J Gilson - One of the best experts on this subject based on the ideXlab platform.
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understanding venture capital structure a tax explanation for convertible Preferred Stock
Harvard Law Review, 2003Co-Authors: Ronald J Gilson, David M SchizerAbstract:The capital structures of venture capital-backed U.S. companies share a remarkable commonality: overwhelmingly, venture capitalists make their investments through convertible Preferred Stock. Not surprisingly, a large part of the academic literature on venture capital has sought to explain this peculiar pattern. Financial economists have developed models showing, for example, that convertible securities allocate control depending on the portfolio company's success, operate as a signal to overcome various kinds of information asymmetry, and align the incentives of entrepreneurs and venture capital investors. In this Article we extend this literature by examining the influence of a more mundane factor, tax law, on venture capital structure. A firm that issues convertible Preferred Stock to venture capitalists is able to offer more favorable tax treatment for incentive compensation paid to the entrepreneur and other portfolio company employees: Instead of being taxed currently at ordinary income rates, the entrepreneur and employees can defer tax until the incentive compensation is sold (or even longer), at which point a preferential tax rate is available. No tax rule explicitly connects the employee's tax treatment with the issuance of convertible Preferred Stock to venture capitalists. Rather, this link is part of tax "practice" - the plumbing of tax law, familiar to practitioners but, predictably, opaque to those, including financial economists, outside the day-to-day tax practice. Despite its obscurity, this tax factor is likely to be of first order importance. Intense incentive compensation for portfolio company founders and employees is a fundamental feature of venture capital contracting. Favorable tax treatment for this compensation is a byproduct and, we believe, a core purpose of the use of convertible Preferred Stock. We also highlight an important but low visibility tax subsidy for the venture capital market, and the early stage, usually high technology, firms that are financed there. Although this subsidy arose inadvertently, it has an interesting structure. Funds are not provided directly to companies selected by the government (a familiar technique outside the United States), or to all companies. Instead, venture capital investors are enlisted as the subsidy's gatekeeper. As a practical matter, only companies that can attract venture capital investment receive this subsidy. Our analysis thus adds a different twist on the familiar debate about providing subsidies through the tax system, instead of through direct expenditures or favorable regulatory treatment.
John S Howe - One of the best experts on this subject based on the ideXlab platform.
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the long run Stock performance of Preferred Stock issuers
Review of Financial Economics, 2006Co-Authors: John S HoweAbstract:Abstract We examine the long-run common Stock performance of Preferred Stock issuers. We find that significant abnormal underperformance is present only for 1 year after the issue. For the longer term we do not find consistently significant abnormal performance. This result contrasts with substantial underperformance of common equity and debt issuers during the 3 or 5 years post-issue. The better long-run performance of Preferred issuers relative to common equity and debt issuers is driven primarily by financial firms' motivation to issue Preferred Stock to satisfy regulatory requirements of capital adequacy.
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CORPORATE GOVERNANCE CHARACTERISTICS OF FIRMS THAT ISSUE Preferred Stock
Advances in Financial Economics, 2004Co-Authors: John S HoweAbstract:We examine three corporate governance characteristics of Preferred Stock issuers relative to non-issuers: managerial equity ownership, board size, and block shareholder ownership. We find that the Preferred issuers have significantly lower managerial equity ownership than their controls. The finding is consistent with our expectation that the use of Preferred Stock and managerial equity ownership both serve to reduce agency costs and thus, Preferred issuers tend to have little incentive to resort to higher managerial ownership to lessen agency costs. Significantly larger board size for Preferred issuers is evident, but we find no difference in block shareholder ownership.