The Valuation Methods and Accounting Treatments of Convertible Preferred Stock

• Main Authors: Tzu-Chi Lee, 李子錤
• Other Authors: Dr. Min-Jeng Shiue
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/71421985462149182678

碩士 === 輔仁大學 === 會計學系碩士班 === 98 === Abstract： The purpose of this study is to analyze and discuss the valuation methods and accounting treatments for convertible preferred stocks. Due to recent rapid-changing channels of investment, great diversity in investment targets, in addition to the fact that corporations are constantly seeking to raise more funds to replenish capital and expand production capacity, a number of financial instruments are found in the market. However, only a few researches focused on convertible preferred stocks (CPS). Before the financial crisis in 2008, convertible preferred stocks are rare in the capital markets. However, the variety release conditions for convertible preferred stocks, such as the voting rights, cumulative rights, participation rights, conversion rights, etc., caused CPS may become a popular financial instrument. Nowadays, mergers and acquisitions are prevalent in financial industry all over the world. Recently, the Financial Supervisory Committee (FSC) agreed that this type of preferred stock (CPS) need not to be listed as financial debts which induce a great demand of convertible preferred stocks. After the law of private equity is approved, procedures for funding using convertible preferred stocks have been simplified a great deal. However, due to the fact that lack of an active market to evaluate the price of CPS, it is difficult to make a wise decision properly for the investors. In 2005, the case of Taishin Holdings’ attempted to merge with Chang Hwa Bank and also gained much attention and debate among the market, government, and academic fields. In this study, we find that common used valuation models for convertible preferred stocks are Pricing Option Embedded Bonds, Two-Factor and American Option Pricing Valuation Models. All of these methods are capable of acquiring theoretical values, forming a basis for decision making. The second part of this thesis includes a case study, using Chang Hwa Bank’s private trading of convertible preferred stocks as an example. We expect that by way of this thesis exposition, investors and other market participants will understand both the valuation and accounting treatment of CP more clearly and thoroughly.