An Investigation of Preferred Stock Financing by Bank and Nonbank Financial Institutions
J. OF FINANCIAL RESEARCH
Posted: 26 Nov 1996
We investigate the shareholder wealth effects of announcements of preferred stock issues made by financial institutions. Fixed-rate straight preferred stock and convertible preferred stock issue announcements result in insignificant common share price responses. However, the average stock price reaction to announcements of adjustable-rate preferred stock issues is positive and significant for banking firms. Our findings suggest that banks' common shareholders react positively to adjustable- rate preferred stock issue announcements because such securities provide a relatively low cost means of increasing the primary capital used to satisfy legal minimum capital requirements without diluting common equity voting rights.
JEL Classification: G21, G34
Suggested Citation: Suggested Citation