Why do so few companies issue preferred stock?

Question

I tried researching for a reason, but can't find the answer. From a corporations stand-point, what is so bad, or howcome they don't issue preferred stock?

I understand the difference between common stock and the various forms of preferred stock, but not why preferred stock is rarely issued by most corporations.

A link to the information would be appreciated if you're reading it somewhere.

Answer 1

Preferred stock is similar to debt, in that there is a fixed obligation (with fixed payments due periodically). Additionally, in terms of liquidation preference in the event of a bankruptcy, it is senior to common equity. So in these ways, preferred stock is similar to debt. The reason very little preferred stock is issued in the US today is due to the chief difference vis a vis debt: the fixed payment is not tax deductible to the issuing corporation. So it is advantageous for a company to isse debt versus preferred stock.

Answer 2

maybe one of the reasons why few companies issue preferred stock (or preference shares) in contrast with Ordinary shares, is due to the fact that preferred stock have a less flexible payment structure than ordinary stock does. Also preference shares are 'preferred' that means that holders of such stock have to be paid before ordinary shareholders. preference cpaital preceds ordinary share capital when assets are sold in a liquidiation and the proceeds distributed.

Preference share dividends also do not qualify for tax relief. This lack of a tax shield explains why preference hsares are relatively unattractive to companies compared to other forms of fixed rate security.

also another form of preferred stock.. the cumulative preference share - is another drawback since if the company decides not to pay any dividend for a particular year, it must accumulate this dividend for the subsequent year when it finally decides to pay the dividend

Answer 3

Preferred stocks are a means by which companies pay mandated dividends. Companies resort to this route when they fear that ordinary stocks of theirs has lost confidence with the investing public due to lack of good performance. Also, preferred stocks don't give voting rights to the investor. So the companies don't have to worry about investors interfering with their management decisions. When companies after a string of bad performance need to show that they are still good and need finances for something new happening which they feel will produce result they resort to preferred stock route.

Answer 4

Preferred stock can give the stock/share holder(s) the upper hand in matters of voting.
The preferred stock holders could actually alter the vote of the board of directors.

Answer 5

What monkey dad said, as well as voting powers.