Perpetual securities and stock prices: Korean evidence

Young Jun Kim, Sera Choi, Eugenia Y. Lee and Su Jeong Lee

Journal of Contemporary Accounting and Economics, 2023, vol. 19, issue 1

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.

Keywords: Perpetual security; Hybrid security; Stock price; Convertible financial instrument; International Financial Reporting Standards (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:19:y:2023:i:1:s1815566922000352

DOI: 10.1016/j.jcae.2022.100340

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