Revisiting cumulative preferred stock valuation


Realdon, Marco (2006) Revisiting cumulative preferred stock valuation. Finance Research Letters, 3, (1), 2-13. (doi:10.1016/j.frl.2006.01.002).

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Description/Abstract

This paper revisits the valuation of cumulative preferred stock, whose fair price is shown to critically depend on dividend arrears and the firm's earnings. Such fair price is an almost everywhere concave function of the firm's assets value and it tends to increase in the rate at which the firm generates earnings. When dividends are in arrears, the preferred stock call price should increase accordingly. If not, cumulative preferred stock becomes similar to the non-cumulative one. The value of a low credit quality preferred stock may well increase with interest rates. A finite difference algorithm is presented to value preferred stock as a function of the firm's asset, stochastic interest rates and dividend arrears

Item Type: Article
Additional Information:
ISSNs: 1544-6123 (print)
Related URLs:
Keywords: cumulative preferred stock, dividend arrears, call option, default, structural model
Subjects: H Social Sciences > HG Finance
Divisions: University Structure - Pre August 2011 > School of Management
ePrint ID: 47186
Date Deposited: 03 Aug 2007
Last Modified: 27 Mar 2014 18:31
URI: http://eprints.soton.ac.uk/id/eprint/47186

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