| Summary: | 碩士 === 國立政治大學 === 會計學系 === 90 === With the change of economic environment and the loose regulation of law for financing ways, firms have many choices of financing, and preferred stock is an alternative. This study examines, during 1985-2001 for a sample of preferred stocks in Taiwan Stock Exchange, what firm is appropriate for issuing preferred stock and what type of preferred stock has higher value. By studying the factors that determine the issuance of preferred stock and that affect price spread between common stock and preferred stock, the empirical result could be used for decision-making of firms and investors.
In the factors of determining the issuance of preferred stock, we find that financial position and capital structure could indeed affect the firm’s decision of whether to issue preferred stock or not. When firms are in weaker financial position, they are inclined to finance by issuing preferred stock to avoid worse financial structure. Besides, when firms that have debt ratio higher than the average levels of industry, they are not likely to finance by issuing additional debt to make the debt ratio even higher. On the other hand, empirical evidence does not support the tax benefit hypothesis. By the advanced analysis of preferred stock and common stock, the empirical result shows that firms with weaker financial position or with higher potential growth are more inclined to issue preferred stock.
As for the price spread between common stock and preferred stock, preferred stock with convertible right or stock dividend provisions, which give the preferred stockholders additional rights, tend to have higher stock price. In addition, when the market liquidity and the volatility of common stock returns are relatively higher, the preferred stock of the corresponding firms tends to have lower stock price. However, the coefficients of the variables about approval provision and dividend rate on common stock have signs contradictory to the prediction. The reasons may be that the approval provision (APR) and the return of preferred stock (RET_PS) are significantly positively correlated. Therefore, when APR is smaller, RET_PS is also lower, leading to worse preferred stock price. As for the stock dividend rate (ST_D), since the preferred stock price may have risen with the common stock price, higher ST_D may on the contrary leads to higher preferred stock price.
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