Business Commons^™

The Importance Of Call Delays And Cash Flow Positions In Evaluating The Information Content Of Convertible Preferred Stock Calls, L. Paige Fields, Michael S. Wilkins, Eric L. Mais

School of Business Faculty Research

We examine a sample of in-the-money convertible preferred stock calls and find that they are delayed. We find that the length of the call delay does not depend on the relation between the preferred stock dividends and the pro rata common dividends to be paid on conversion. Thus, our evidence suggests that preferred stock calls may be used for signaling purposes. In support of this, we find that only delayed calls (i.e., those with potential signaling elements) are viewed negatively by equity investors. We also show that, in responding to delayed call announcements, investors appear to react to two distinct …