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Wealth transfers and the initial pricing of PERCS

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  • S. Swidler
  • P. Ahmed

Abstract

The purpose of this paper is to examine the initial pricing of a form of convertible preferred stock, PERCS (preferred equity redemption cumulative stock). The analysis shows that investors may pay more for the PERCS than the value of the individual components of the financially engineered security. The empirical results suggest that PERCS may be a cheaper way for firms to issue equity causing wealth transfers from holders of PERCS to common stock shareholders.

Suggested Citation

  • S. Swidler & P. Ahmed, 1994. "Wealth transfers and the initial pricing of PERCS," Applied Economics Letters, Taylor & Francis Journals, vol. 1(11), pages 190-193.
    • Handle: RePEc:taf:apeclt:v:1:y:1994:i:11:p:190-193
    DOI: 10.1080/135048594357853
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    1. repec:bla:jfinan:v:44:y:1989:i:5:p:1263-87 is not listed on IDEAS
    2. Latane, Henry A & Rendleman, Richard J, Jr, 1976. "Standard Deviations of Stock Price Ratios Implied in Option Prices," Journal of Finance, American Finance Association, vol. 31(2), pages 369-381, May.
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    Cited by:

    1. Herrera, Helios & Schroth, Enrique, 2011. "Advantageous innovation and imitation in the underwriting market for corporate securities," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1097-1113, May.

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