An analysis of the usage of preferred stock in Sweden

Abstract

This paper aims to explain why the few issuers of preferred stock in Sweden have chosen to issue this historically unpopular instrument. We examine characteristics of the issuers of preferred stock related to two possible explanations, the financial distress hypothesis and the agency costs hypothesis, relative to non-issuers. Our findings show that issuers of preferred stock have significantly higher Debt-to Equity ratios and significantly lower Altman’s Z-score than the non-issuers. This leads us to conclude that Swedish preferred stock issuers have worse financial health than the non-issuers and have probably tapped their possibility to issue debt. However, we could not conclude any significant difference in managerial ownership (measurement of agency costs) between the two groups.