Rational Timing of Calls of Convertible Preferred Stocks

Posted: 2 Jul 1998

See all articles by Anthony K. Byrd

Anthony K. Byrd

University of Central Florida - College of Business Administration

Steven V. Mann

University of South Carolina

William T. Moore

University of South Carolina

Pradipkumar Ramanlal

University of Central Florida - College of Business Administration

Abstract

Conversion-forcing calls of convertible preferred stocks are re- examined focusing on the value of the conversion option impounded in the preferred price. This amount represents the preferred shareholder wealth potentially transferable to common stockholders. Capture of this wealth underlies the theoretical motivation for calling and forcing conversion as soon as possible. Most of the preferred issues examined exhibit nonpositive average option values throughout all but short periods in their lives; hence, no wealth transfer opportunity exists for immediate calls. Issues that exhibit positive option values are called quickly. In contrast to interpretations that have persisted for over fifteen years, our results reveal no substantial delays in calling convertible preferred stocks.

JEL Classification: G13

Suggested Citation

Byrd, Anthony K. and Mann, Steven V. and Moore, William Ted and Ramanlal, Pradipkumar, Rational Timing of Calls of Convertible Preferred Stocks. Available at SSRN: https://ssrn.com/abstract=89648

Anthony K. Byrd

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States
407-823-5715 (Phone)

Steven V. Mann

University of South Carolina ( email )

Francis M. Hipp Building
Darla Moore School of Business
Columbia, SC 29208
United States
803-777-4929 (Phone)
830-777-6876 (Fax)

William Ted Moore (Contact Author)

University of South Carolina ( email )

Darla Moore School of Business The Francis M. Hipp
Columbia, SC 29208
United States
803-777-4905 (Phone)
803-777-6876 (Fax)

Pradipkumar Ramanlal

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
904
PlumX Metrics