University Finance Report: Preferred Stock, Common Stock, and Issuance

This report provides a comparative analysis of preferred and common stock, detailing their characteristics and implications for investors and companies. It explains that preferred stock, similar to bonds, offers fixed dividends but lacks voting rights, while common stock grants voting rights and dividends dependent on company performance. The report highlights the reasons for issuing both types of stock, emphasizing the financial benefits such as reducing debt and improving debt-to-equity ratios. Issuing preferred stock is considered as an equity vehicle rather than a debt security, which helps companies acquire investment. Additionally, it discusses the impact of interest rates on preferred stock value and the order of preference during company liquidation. The report references academic sources to support the findings and provides a comprehensive overview of the financial instruments and their strategic importance.

Running head: ACCOUNTING AND FINANCE
ACCOUNTING AND FINANCE
Name of Student
Name of University
Author’s Note

1ACCOUNTING AND FINANCE
Table of Contents
PREFFERED STOCK:........................................................................................................2
COMMON STOCK:............................................................................................................2
REASONS FOR ISSUING BOTH PREFFERED STOCK AND COMMON STOCK:....3
REFERENCES:...................................................................................................................4

2ACCOUNTING AND FINANCE
PREFFERED STOCK:
Preferred stock is the type of stock that the public company issues in the market.
Preferred stock does not carry any voting right. During the election of the Chairman or directors
of the company, preferred stock holder does not hold any kind of voting right. The preferred
stock works similarly as bond. Preferred stock holder receives fixed dividend after every
financial period. The dividend usually depends on the par value of the stock when it was
assigned. Preferred stocks are also being affected by the interest rates (Arcot, 2014). Thus, when
the interest rates decline then the value of the preferred stock also declines. During the winding
up of the company, the preferred stock holder of the company is being preferred first. The
preferred stock holders can redeem the shares from the market. During redemption of the
preferred shares the companies usually provides premium over the purchase price.
COMMON STOCK:
Common stock of the company is the ownership that the companies offer in respect to the
investment. Common stock offers dividends to their owners and also offers the voting rights to
the company. In most cases the common stock holders are given the rights to confer the voting
for the selection of the director or any board members (Chang & Puthenpurackal, 2014).
Investors of the company often get their voting rights based on the number of shares they hold.
The common stock holders of the company also involved in the important decisions. In normal
cases, it can be seen that common stock always outperform the bonds and preferred shares. The
value of the dividend depends on the company’s performance. Common stock cannot be
transferred into preferred stock, but preferred shares can be transferred into common stock. The
payment of dividend to the common stock holders depends on the directors of the company.

3ACCOUNTING AND FINANCE
REASONS FOR ISSUING BOTH PREFFERED STOCK AND COMMON STOCK:
The management of the company prefers issuing both preferred stock and common stock.
Companies benefits from the issuing of preferred stocks because preferred stocks are technically
considered as an equity vehicle rather than debt security like bond. The issuing of the preferred
stocks led company holds less amount of debts and hence the debt-to-equity ratio gets lower
(Walther, 2014). Lower debts will amount to increase the chances of getting investment from the
market because the market regulators and the investors will perceive the move as the positive
one.
The issuing of common stock will also benefited the company, as they reduce the debt in
the market. The amount or fund that is received from the market need not be paid and even there
is no interest associated with it. Corporate managers of the company often issue the shares, when
the company has high debt.
Thus, it can be understood from the above discussion that the issuing of both preferred
shares and common stocks assists the company in various ways. It not only assists the company
to acquire required investment from the market, but it also assists the company to reduce the
market debt.

4ACCOUNTING AND FINANCE
REFERENCES:
Arcot, S. (2014). Participating convertible preferred stock in venture capital exits. Journal of
Business Venturing, 29(1), 72-87.
Chang, S., & Puthenpurackal, J. (2014). Repurchases of convertible preferred stock and
shareholder wealth. Journal of Business Research, 67(4), 623-630.
Mahdaleta, E. (2016). Effects of capital structure and profitability on corporate value with
company size as the moderating variable of manufacturing companies listed on Indonesia Stock
Exchange.
Walther, B. (2014). The peril and promise of preferred stock. Del. J. Corp. L., 39, 161.