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The long‐run stock performance of preferred stock issuers

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  • John S. Howe
  • Hongbok Lee

Abstract

We examine the long‐run common stock performance of preferred stock issuers. We find that significant abnormal underperformance is present only for 1 year after the issue. For the longer term we do not find consistently significant abnormal performance. This result contrasts with substantial underperformance of common equity and debt issuers during the 3 or 5 years post‐issue. The better long‐run performance of preferred issuers relative to common equity and debt issuers is driven primarily by financial firms' motivation to issue preferred stock to satisfy regulatory requirements of capital adequacy.

Suggested Citation

  • John S. Howe & Hongbok Lee, 2006. "The long‐run stock performance of preferred stock issuers," Review of Financial Economics, John Wiley & Sons, vol. 15(3), pages 237-250.
    • Handle: RePEc:wly:revfec:v:15:y:2006:i:3:p:237-250
    DOI: 10.1016/j.rfe.2005.08.002
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    References listed on IDEAS

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