The interplay of hybrid preferred and debt security innovation, macroeconomic variables and regulatory agencies from 1983-2016

George O. Gamble, Beu Lee, Thomas R. Noland and Cynthia Tollerson

International Journal of Accounting and Finance, 2024, vol. 12, issue 1/2, 71-109

Abstract: This study finds that when the downward trend in interest rates began, innovative hybrid bond issuances reached their highest level. In the mid-1980s, when interest rates and volatility were falling, the demand for interest-rate-linked hybrid securities increased, creating a demand for new interest-rate-linked hybrid securities. On average, hybrid securities issuances followed the same pattern as the Dow Jones Index. However, this correlation shifts after 2001 until 2006. Amid the stock market slide, investors found hybrid debt to be a safe investment. The FASB's regulatory impact is the greatest for those innovative securities that are, for the most part, only issued by non-regulated entities. Security innovation and regulation are closely related when securities are issued in highly regulated industries. The relationship between security innovation and regulation is loose for innovative securities designed for less regulated industries. Macroeconomic variables appear to impact issuances of innovative securities in less-regulated industries more than those designed for highly regulated industries.

Keywords: hybrid securities; macroeconomic variables; regulatory agencies; innovative securities; hybrid debt; hybrid preferred stock; financial reporting; regulated industries; recession; FASB Standard 133; FASB Standard 155; financial engineering. (search for similar items in EconPapers)
Date: 2024
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