Perpetual securities and stock prices: Korean evidence |
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| Institution: | 1. College of Business, Hankuk University of Foreign Studies, South Korea;2. Department of Management, Korea National Open University, South Korea;3. Department of Business Administration, Sejong University, South Korea;4. Department of Business Administration, Inha University, South Korea;1. Department of Business Administration, National Chung Cheng University, Taiwan;2. Department of Economics, National Chengchi University, Taiwan;1. Belt and Road School, Beijing Normal University, Zhuhai 519087, China;2. Deakin Business School, Deakin University, Australia;3. Department of Accounting and Finance, School of Business, Macau University of Science and Technology, Macau;1. Graduate School of Science in Taxation, University of Seoul, 163 Seoulsiripdaero, Dongdaemun-gu, Seoul 02504, Republic of Korea;2. School of Business Administration, Chonnam National University, 77, Yongbong-ro, Buk-gu, Gwangju 61186, Republic of Korea;1. University of Murcia, Department of Accounting, Murcia, Spain;2. University of Murcia, Department of Management and Finance, Murcia, Spain |
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| Abstract: | Perpetual securities are classified as equity under the International Financial Reporting Standards, but various contract terms embedded in the securities create additional debt- and equity-like characteristics. This study examines whether stock market investors differentiate between diverse contract attributes. Using quarterly data on listed non-financial firms in the Korea Exchange that issued perpetual securities during 2012–2020, we document the following findings. First, perpetual securities are positively associated with stock prices. Second, the positive association is driven by perpetual securities convertible to stocks rather than non-convertible ones. Third, when further decomposing convertible perpetual securities based on whether the conversion price is fixed or floating, only fixed-priced convertibles show a positive association with stock prices. Overall, our findings suggest that equity investors consider the detailed contract attributes important for financial instruments. |
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| Keywords: | Perpetual security Hybrid security Stock price Convertible financial instrument International Financial Reporting Standards |
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