Vanderbilt Law Review

First Page



Investors, who seldom read law reviews, continue to put their money into preferred stocks. In the last five reported years, approximately 3 billion of dollars worth of preferred shares have been offered to the public, or more than a third of the value of all stock offered. Can Mr. Becht and the investors both be right?

Presumably the investors are directing their attention to different aspects of preferred stock than is Mr. Becht. Like other lawyers, he is considering what managements can do to preferred shareholders if they do their worst. His conclusions are based on the records of cases which have been fought through to judicial decision.

The investors, if they consider anything at all, would properly direct their attention to what is likely to happen, or what has happened most frequently in the past. On this point there is little information in the law reviews or, so far as we have discovered, in financial literature. This paper reports on an attempt to find out how frequently the investor in preferred stocks is subjected to the manipulations which legal analysts have described. It is based on the record made from 1932 through 1951 by 79 preferred stocks which were listed on the New York Stock Exchange.