Canada's Interconvertible Shares: A Puzzle
AbstractPassage of the Canada Income Tax Act of 1971 permitted Canadian corporations to issue two classes of equity, one paying ordinary cash income and the other paying capital gains income. The shares are known as "interconvertible" because each share is freely convertible one-for-one into a share of the other type. Premiums paid for cash shares are consistent with the relative value of the dividends paid and with the taxation of certain investor groups. However, large premiums for some cash shares are evidence that the shares have been mispriced with respect to the conversion option.
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Bibliographic InfoPaper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number qt10718328.
Date of creation: 01 Jan 1994
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