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Enhancing corporate governance with one-and two-tiered convertible preferred stock

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  • Rodolfo Apreda

Abstract

This paper sets out a proposal by which two distinctive and new types of preferred stock (one- and two-tiered convertibles) could be used to sharpen up a company's governance. Firstly, the framework of analysis for standard preferreds will be outlined, mainly their valuation, underlying incremental cash flows, control rights and contractual features. Secondly, one - and two - tiered convertible preferred are introduced, setting up their financial design, how they convey control rights and contractual characteristics, and giving heed to a simple valuation for those preferreds. Last of all, it will be shown how the one- and twotiered convertibles come in handy to deal with some particular governance topics: capital structure, debt refinancing and compensation schemes for management.

Suggested Citation

  • Rodolfo Apreda, 2004. "Enhancing corporate governance with one-and two-tiered convertible preferred stock," CEMA Working Papers: Serie Documentos de Trabajo. 260, Universidad del CEMA.
  • Handle: RePEc:cem:doctra:260
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    File URL: http://www.ucema.edu.ar/publicaciones/download/documentos/260.pdf
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    References listed on IDEAS

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    1. repec:bla:joares:v:37:y:1999:i:2:p:249-274 is not listed on IDEAS
    2. Oliver Hart, 2001. "Financial Contracting," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1079-1100, December.
    3. H. Lawrence Wilsey, 1947. "The Use Of Sinking Funds In Preferred Stock Issues," Journal of Finance, American Finance Association, vol. 2(2), pages 31-42, October.
    4. Arnold R. Cowan, 1996. "Convertible Exchangeable Preferred Stock," Finance 9606001, EconWPA, revised 12 Aug 1996.
    5. repec:mes:jeciss:v:30:y:1996:i:4:p:1212-1216 is not listed on IDEAS
    6. Keith D. Harvey & M. Cary Collins & James W. Wansley, 2003. "The Impact of Trust-Preferred Issuance on Bank Default Risk and Cash Flow: Evidence from the Debt and Equity Securities Markets," The Financial Review, Eastern Finance Association, vol. 38(2), pages 235-256, May.
    7. Rodolfo Apreda, 2002. "Incremental cash flows, information sets and conflicts of interest," CEMA Working Papers: Serie Documentos de Trabajo. 220, Universidad del CEMA.
    8. Britten-Jones, Mark, 1998. "Fixed Income and Interest Rate Derivative Analysis," Elsevier Monographs, Elsevier, edition 1, number 9780750640121.
    9. Steven N. Kaplan & Per Strömberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 281-315.
    10. Sorensen, Eric H. & Hawkins, Clark A., 1981. "On the Pricing of Preferred Stock," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 515-528, November.
    11. Rodolfo Apreda, 2002. "How corporate governance and globalization can run afoul of the law and good practices in business: The Enron's disgraceful affair," CEMA Working Papers: Serie Documentos de Trabajo. 225, Universidad del CEMA.
    12. Rodolfo Apreda, 2003. "THE SEMANTICS OF GOVERNANCE. (The common thread running through corporate, public, and global governance.)," CEMA Working Papers: Serie Documentos de Trabajo. 245, Universidad del CEMA.
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    Cited by:

    1. Chisari, Omar O. & Ferro, Gustavo, 2009. "Gobierno Corporativo: los problemas, estado actual de la discusión y un ejercicio de medición para Argentina
      [Corporate Governance: the problems, the current stage of the discussion and a measureme
      ," MPRA Paper 15630, University Library of Munich, Germany.

    More about this item

    Keywords

    preferred stock; convertible preferred stock; corporate governance; control rights; compensation scheme.;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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