A Study On Issuing Preferred Stock Of Pudong Development Bank

Preferred stock,one of the tools to supplement the banks' core capital,are favored by the commercial banks.In 2012,China decided to restart preferred stock system,with State Council issuing Guidance on the Development of Preference Stock Pilot officially opening the wave of preference stock financing.Preferred stock is a type of mixed securities with certain characteristics of debt and equity,which has good financial flexibility.Preferred stock and its supporting measures landing in China's capital market will actively promote the development of China's multi-level capital market system.Therefore,in such background,to explore the role and effect of preference shares is very necessary.This paper attempts to take Shanghai Pudong Development Bank,a share-holding commercial Bank,as a typical case,analyzing the motivation and effect of its preference shares issuing,in order to make an objective evaluation of preferred stock as a new financing tool.According to its motivation,it discusses whether preferred stock achieves the expected effect,so as to provide a reference for China's listed banks and listed companies to issue preferred stock financing.This paper firstly expounds the related concepts of preferred stock financing,summarizes the characteristics and classification of preferred stock,and describes the necessity of commercial banks to issue preference shares,utilizes the agency theory and the pecking order theory and control theory to analyze the theoretical foundation.Then,this paper focuses on the case of Shanghai Pudong Development Bank's preferred shares,including the Bank's development background,the process of its issuance,the characteristics of this case.Then,this paper mainly introduces the motivation of the Bank's issuing preferred shares and the corresponding effect,such as supplementing core capital to meet regulatory requirements,expanding its own capital so as to improve the quality of bank assets,improving its profitability,pulling its common stock price.Through horizontal and vertical comparison of related financial index,we find that preference shares has significant influence on the capital structure of Shanghai Pudong Development Bank,especially on the capital adequacy ratio,and has a positive effect in safety and profitability of the bank's financial performance.But the preferred plan of preference shares doesn't make significantly positive influence on the market performance because of great risk to investors.Based on the analysis of the case,the preferred shares can effectively replenish capital for banks to issue preference shares,improve the financial performance and relatively enhance profitability.But the preferred stock plan does not have the obviously excess returns on the market.Then this paper puts forward specific measures and suggestions for China's capital market to promote the development of preferred stock.This paper mainly uses normative analysis,combining theoretical research with case analysis which exploits financial DuPont analysis,index method and event analysis method to make a comprehensive analysis of its financial performance,market performance and corporate governance before and after issuing the preferred stock.The practical significance of this paper is to provide a complete case study of preferred stock financing,and also provide policy recommendations for China's development of preferred stock,thus further promoting the application of preferred stock and preferred stock system.