Operating Performance and Stock Returns of Firms Calling Convertible Preferred Stocks

18 Pages Posted: 12 Nov 2004

See all articles by Palani-Rajan Kadapakkam

Palani-Rajan Kadapakkam

University of Texas at San Antonio - Department of Finance

Huey-Lian Sun

Morgan State University - Department of Accounting and Finance

Alex P. Tang

Morgan State University

Abstract

Using methodologies developed by Barber and Lyon (1996 and 1997), we examine the long-run operating performance and stock returns of firms around in-the-money calls of convertible preferred stock. Our study intends to be a direct test of the hypothesis that managers call in-the-money convertibles when they view a decline in the firms' performance. We find no evidence that calling firms underperform non-calling benchmark firms. On the contrary, we find mild evidence that the post-call operating performance of calling firms is better than a carefully selected group of benchmark firms and call firms' post-call stock returns are no worse than benchmark firms.

Keywords: convertible security calls, convertible preferred stock, operating performance, stock returns, signaling

Suggested Citation

Kadapakkam, Palani-Rajan and Sun, Huey-Lian and Tang, Alex P., Operating Performance and Stock Returns of Firms Calling Convertible Preferred Stocks. Available at SSRN: https://ssrn.com/abstract=618314

Palani-Rajan Kadapakkam

University of Texas at San Antonio - Department of Finance ( email )

San Antonio, TX 78249
United States

Huey-Lian Sun

Morgan State University - Department of Accounting and Finance ( email )

Baltimore, MD 21251
United States
443-885-3971 (Phone)
410-319-3721 (Fax)

Alex P. Tang (Contact Author)

Morgan State University ( email )

1700 E. Cold Spring Ln
Baltimore, MD 21251
United States

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