Perpetual securities and stock prices: Korean evidence

Perpetual securities are classified as equity under the International Financial Reporting Standards, but various contract terms embedded in the securities create additional debt -and equity-like characteristics. This study examines whether stock market investors differ-entiate between diverse contract attributes. Using quarterly data on listed non-financial firms in the Korea Exchange that issued perpetual securities during 2012-2020, we docu-ment the following findings. First, perpetual securities are positively associated with stock prices. Second, the positive association is driven by perpetual securities convertible to stocks rather than non-convertible ones. Third, when further decomposing convertible per-petual securities based on whether the conversion price is fixed or floating, only fixed -priced convertibles show a positive association with stock prices. Overall, our findings sug-gest that equity investors consider the detailed contract attributes important for financial instruments. (c) 2022 Published by Elsevier Ltd.