The primary purpose of this dissertation is to investigate selected capital structure theories through the study of the effect of preferred stock issuances on the wealth of common shareholders. These theories include the tax hypothesis of Modigliani and Miller (1963), the asymmetric information hypothesis of Myers and Majluf (1984), the signalling hypotheses of Ross (1977), and the growth hypothesis of Heinkel and Zechner (1990). The secondary purpose is to examine the importance of various features of preferred stock. These features include convertibility, callability, and whether the dividend rate is fixed or adjustable. The hypotheses are tested by estimating the wealth effect of the preferred stock issue announcement on the common shareholders and separating the alternative explanations by relating the wealth effect to the characteristics of the issuer and the issue. / This dissertation provides evidence of a significant negative market reaction to the announcement of the issuance of preferred stock. The negative reaction is more pronounced when only non-regulated firms are included in the sample. The market reaction is not significant for a sub-sample of regulated firms. / This dissertation does not support existing capital structure theories. The evidence fails to support the tax hypothesis, the growth hypothesis, the asymmetric information hypothesis, and the signalling hypothesis. There is also insufficient evidence that the use of free cash flows reduces agency costs. Although the inclusion of tax hypothesis variables and growth hypothesis variables contributes significantly to explaining abnormal returns, the signs of the coefficients are opposite of those predicted by theory. Of the features examined, only callability is found to be significant in explaining abnormal returns, but the sign is opposite of that predicted by theory. / The primary contribution of this dissertation is further examination of capital structure theories in the context of preferred stock issuances. There is considerable evidence on the wealth effects of common stock issuance, but little evidence exists on preferred stock. The secondary contribution is a better understanding of the recent changes and growth in the market for preferred stock. / Source: Dissertation Abstracts International, Volume: 56-11, Section: A, page: 4495. / Major Professor: Pamela P. Peterson. / Thesis (Ph.D.)--The Florida State University, 1995.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_77594 |
| Contributors | Beck, Kristine Louise., Florida State University |
| Source Sets | Florida State University |
| Language | English |
| Detected Language | English |
| Type | Text |
| Format | 104 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
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