Debt-Equity Hybrid Securities
University of Chicago Booth School of Business
University of Chicago - Booth School of Business
Edward L. Maydew
University of North Carolina at Chapel Hill
Journal of Accounting Research, Autumn 1999
Trust preferred stock, first issued in 1993, was engineered to be treated as preferred stock for financial statement purposes and as debt for tax purposes (i.e., payments on trust preferred stock are deductible by the issuer). Our analyses exploit the features of trust preferred stock to shed light on three issues: 1) the extent to which firms incur costs to manage the balance sheet classification of a security; ii) the magnitude of tax benefits, if any, associated with leverage increasing capital structure decisions, and iii) the extent to which investor-level taxation imposes implicit taxes on securities.
JEL Classification: M41, M43, M49, H25, G32
Date posted: October 5, 1999
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