All of the following are characteristics of preference shares except:
A. They are either callable or puttable
B. They generally do not have voting rights
C. They do not share in the operating performance of the company
I am very clear with option A and B, however; I am confused with option C. Because I think participating preference shares entitle shareholders to receive an additional dividend if the company’s profits exceed a predetermined level, which is related to operating performance??
Thanks in advance.
I don’t understand this either. I think the answer is A? Since they can be putable or callable, but don’t have to be, however the text explicitly states that they don’t share in the operating performance of the company. To me this is a quandary. Aren’t preference shareholders entitled to receive dividends even if there’s not enough to go around for the common shares?
A - Appears to be false – they dont have to be callable/putterable
B - Appears to be correct - They do not having voting rights unless it is the voting-preferred shares
C - Appears to be correct – They do not appreciate in value like common stock
Ooooh, I think I get it now, thanks. I think this also makes it quite clear why callable shares exist. If the share price drops, the dividend is greater than what the company would like to pay given how much equity underlies this, so making the shares callable, it’s possible to stop paying that dividend.
I think C is testing the concept of participating shares. i.e. you must know that there’s participating and non participating. With participating, then C is incorrect or at least less correct, with non participating, then yes, C is clearly correct.