The Costs of Issuing Preferred Stock

Posted: 29 Oct 2001

See all articles by Atulya Sarin

Atulya Sarin

Santa Clara University - Department of Finance

Mukesh Bajaj

LECG, LLC; University of California, Berkeley - Haas School of Business

Sumon C. Mazumdar

Law and Economics Consulting Group (LECG), LLC; University of California, Berkeley - Haas School of Business

Abstract

US firms commonly use preferred stocks to raise external capital. Yet this hybrid security's issuance costs and offer yields have not been previously examined in a systematic manner. We analyze a sample of 3,042 U.S. preferred stocks issued between 1980 and 1999. We find that convertible issues, which are riskier than straight issues, entail higher gross spreads and other direct expenses. Scale, credit rating, and industry effects influence gross spreads and issuance costs. We also compare preferred stocks yields with various bellwether bond yields. Our results support the tax-based argument that suggests that yields on preferred stocks should be lower than comparable risky bonds.

JEL Classification: G24, G32

Suggested Citation

Sarin, Atulya and Bajaj, Mukesh and Mazumdar, Sumon C., The Costs of Issuing Preferred Stock. Journal of Financial Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=283963

Atulya Sarin (Contact Author)

Santa Clara University - Department of Finance ( email )

Leavey School of Business and Administration
Santa Clara, CA 95053
United States
408-554-4953 (Phone)
408-904-4498 (Fax)

HOME PAGE: http://business.scu.edu/asarin

Mukesh Bajaj

LECG, LLC ( email )

2000 Powell Street, Suite 600
Emeryville, CA 94608
United States
510-450-6736 (Phone)

University of California, Berkeley - Haas School of Business

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Sumon C. Mazumdar

Law and Economics Consulting Group (LECG), LLC ( email )

2000 Powell Street, Suite 600
Emeryville, CA 94608
United States
510-450-5493 (Phone)

University of California, Berkeley - Haas School of Business

Finance Department
Berkeley, CA 94720
United States

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