The impact of calls of preferred stock on common shareholders' wealth

The Importance of Call Delays and Cash Flow Positions in Evaluating the Information Content of Convertible Preferred Stock Calls

“…In contrast, Cowan, Nayar, and Singh (1992) propose a positive relationship because holders should have already converted on their own; therefore, the reason for the call is less likely to be negative information received by management. Similar to Kadapakkam and Tang (1996) and Hingorani et al (1994), we find no relationship between abnormal returns and EXTENT. Therefore, in-the-moneyness does not appear to be an important determinant of price responses to convertible preferred stock call announcements.…”

“…Kadapakkam and Tang (1996) and Hingorani et al (1994) do not find the underwriting effect to be significant. includes DIVRAT.…”

“…Underwriting data were collected from either the Investment Detrler's Digest Direcrory 23. Tang (1996) andHingorani et al (1994) do not find the underwriting effect Corporute Finuncing or the Wull Street Journul.…”

“…In this section, we present an analysis of the cross-sectional determinants of price responses to delayed call announcements. Our analysis is similar to that of Kadapakkam and Tang (1996), Hingorani et al (1994), andSingh (1992). An important difference, however, is that our tests include only delayed calls.…”

“…By eliminating the conversion opportunity, managers force the convertible security holders to accept a fixed claim that is equal to the call price, thereby preventing them from sharing in any residual claim that is gained when the market realizes the firm's true value. The empirical studies of such "early" calls (e.g.. Tang, Kadapakkam, and Singer [1994], Hingorani, Makhija, and Shastri [1994]; Cowan, Nayar, and Singh [1993]) find positive abnormal returns to common stock when the calls are announced, suggesting that such calls signal managers' private expectations of higher future cash flows. These studies are not directly comparable to ours, given that "early" calls, by definition, are not delayed and do not serve as negative signals regarding future profitability.…”