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The choice between publicly issued and privately placed preferred stocks

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  • Qian Wang

Abstract

Purpose - The purpose of this paper is to empirically test information asymmetry and agency conflicts hypotheses, as to firm's choices in selling preferred stock in public and private markets. Design/methodology/approach - Using firm-level preferred stock issue data, the author uses a multivariate logistic model to see a firm's different preferred stock selling decisions among public market, rule 144A market, and non rule 144A market. The paper examines the impact of the firm's idiosyncratic risk and cash flow volatility. Findings - It is found that private placement (non rule 144A) firms have higher information asymmetry than public offering firms. In addition, private placement (rule 144A) firms have higher operating risk than public offering firms. The non Rule 144A market and rule 144A market for preferred stocks are significantly different. Research limitations/implications - This topic can be further studied with more detailed, preferred stock issue data. Originality/value - The paper extends our understanding of the preferred stock market selling mechanism.

Suggested Citation

  • Qian Wang, 2012. "The choice between publicly issued and privately placed preferred stocks," Managerial Finance, Emerald Group Publishing, vol. 38(7), pages 689-701, June.
  • Handle: RePEc:eme:mfipps:v:38:y:2012:i:7:p:689-701
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    References listed on IDEAS

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    1. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
    2. Simon H. Kwan & Willard T. Carleton, 2010. "Financial Contracting and the Choice between Private Placement and Publicly Offered Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 907-929, August.
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    7. Krishnamurthy, Srinivasan & Spindt, Paul & Subramaniam, Venkat & Woidtke, Tracie, 2005. "Does investor identity matter in equity issues? Evidence from private placements," Journal of Financial Intermediation, Elsevier, vol. 14(2), pages 210-238, April.
    8. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    9. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
    10. Chemmanur, Thomas J, 1993. " The Pricing of Initial Public Offerings: A Dynamic Model with Information Production," Journal of Finance, American Finance Association, vol. 48(1), pages 285-304, March.
    11. Armando Gomes & Gordon Phillips, 2005. "Why Do Public Firms Issue Private and Public Securities?," NBER Working Papers 11294, National Bureau of Economic Research, Inc.
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