The operating performance of preferred stock issuers

We examine the operating performance of preferred stock issuers using the sample of preferred stock issues during 1991-2000. We find the median profit margin and Return On Assets (ROA) of the preferred stock issuers deteriorate until the year of preferred issuance, hit the bottom in the year of issuance and gradually recover after the issue. Our finding is in contrast to the Loughran and Ritter's (1997) report of Seasoned Equity Offering (SEO) firms' operating performance; improvement before the issuance and deterioration after the offering. Our finding of the operating performance behaviour of preferred stock issuers is consistent with the common stock performance behaviour of preferred stock issuers found in Howe and Lee (2006), where preferred stock issuers show only transient (1 year post-issue) common stock underperformance and no longer-term (2 and 3 years post-issue) underperformance.