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

  • Rodolfo Apreda

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.

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File URL: http://www.ucema.edu.ar/publicaciones/download/documentos/260.pdf
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Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 260.

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Date of creation: Apr 2004
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Handle: RePEc:cem:doctra:260
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  1. Steven N. Kaplan & Per Stromberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 281-315, 04.
  2. 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.
  3. Oliver Hart, 2001. "Financial Contracting," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1079-1100, December.
  4. 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.
  5. 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, 05.
  6. 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.
  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. Arnold R. Cowan, 1996. "Convertible Exchangeable Preferred Stock," Finance 9606001, EconWPA, revised 12 Aug 1996.
  9. 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.
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