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Original Articles

Wealth transfers and the initial pricing of PERCS

Pages 190-193 | Published online: 05 Oct 2010
 

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.

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