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Debt-Equity Hybrid Securities

Posted: 5 Oct 1999  

Ellen Engel

University of Chicago Booth School of Business; University of Illinois at Chicago - College of Business Administration

Merle Erickson

University of Chicago - Booth School of Business

Edward L. Maydew

University of North Carolina at Chapel Hill

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Abstract

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

Suggested Citation

Engel, Ellen and Erickson, Merle and Maydew, Edward L., Debt-Equity Hybrid Securities. Journal of Accounting Research, Autumn 1999. Available at SSRN: https://ssrn.com/abstract=178589

Ellen Engel

University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-0966 (Phone)
866-377-52152 (Fax)

University of Illinois at Chicago - College of Business Administration ( email )

601 South Morgan Street
11th Floor
Chicago, IL 60607
United States
312-413-3418 (Phone)

Merle Erickson

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-0716 (Phone)
773-702-0458 (Fax)

Edward L. Maydew (Contact Author)

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-843-9356 (Phone)

HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/accounting/edward-maydew

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