Analysis Of The Cause And Impact Of The Issuance Of Convertible And Redeemable Preferred Shares

Preferred stocks appears later in China and are relatively new forms of financing for domestic companies,which has developed rapidly in recent years.With the continuous development of preferred stocks,a number of preferred stocks with new attributes have been derived,such as “the convertible and redeemable preferred stock”issued by Xiaomi Group,which is classified as “liabilities” in accounting treatment because of its particularity.Significant differences in their nature have also contributed to the fact that the conclusions of this particular preferred stock in all aspects are inconsistent with the general ones of existing research.At the same time,as more and more companies choose to issue convertible and redeemable preferred stocks for financing,it is necessary to conduct research on this particular type of preferred stock.This paper selects representative Xiaomi Group as case company,starts from the main terms of its preferred stocks,and deeply analyzes the motivation and impact of issuing such preferred stocks.After research,this paper has the following main conclusions: In terms of the motivation,first of all,the main reason for Xiaomi Group to issue the convertible and redeemable preferred stock is to ensure the stability of its strategy through keeping control rights.Secondly,through the issuance of preferred stocks,the company can raise funds at a lower cost to meet the funding needs of development.Finally,the preferred stock with conversion and redemption rights designed by Xiaomi Group provide investors with more choices,largely eliminating their investment concerns.Because this kind of preferred stock also brings a lot of temporary impacts to the company,and the impact is significant.In order to explore the economic impact of issuing preferred stocks more objectively and comprehensively,this paper studies the temporary economic impact and long-term economic impact brought by the preferred stock.The temporary economic impact mainly includes three points: Firstly,poor performance of the company causing market confusion.Secondly,the increase in the fair value of preferred stocks makes the company bear huge debts,and the owner's equity is a negative number.Thirdly,the increase of financial liabilities' fair value is included in the current profit,causing the company's negative net profit for many years,so there is no profit available for investors to distribute.The long-termimpact mainly includes transporting the signal of the company's rapid development and further enhancing the company's competitiveness.The temporary impact is mainly due to the Xiaomi Group did not prepare financial reports in accordance with the latest standards,so on the basis of the above conclusions,This paper also puts forward some enlightenment for enterprises on issuing preferred shares and the application of accounting standards.