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CORPORATION FINANCE

the United-Carr Fastener Corp. called its preferred stock at $23 per
share, The entire issue was converted into common stock. In 1936, the
$3.50 cumulative preferred stock of the Eastern Steamship Lines, Inc.,
was called for redemption at $55 per share. Holders had the right to
exchange their stock for new $2 cumulative convertible preferred stock,
no-par, share for share. Holders of four-fifths of the outstanding stock
accepted the offer.
Uses of Conversion Privilege.—It has already been suggested that the
preferred-stock conversion privilege is used by the corporation to attract
security buyers not yet ready to become common stockholders. In periods
of prosperity, conversion rights are used freely because at that time not
only speculators but also the class of security buyers designated as "specu-
lative investors" are looking at the advantages of common-stock ownership.
Speculators will make their commitments directly in common stock.
Speculative investors prefer to temporize with their final positions; but
nevertheless, they like to buy preferred stocks that they may convert, at
their discretion, into the more volatile class of securities. In the decade of
the 1920's those issues of preferred stock that carried conversion rights, or
other forms of sweeteners, had a wider following than those which lacked
this additional feature of sales promotion.
Knighfs Study.^1—Earl L. Knight made an exhaustive study of all
preferred stocks whose distributions were recorded in the financial press
from 1900 through 1937. He found 1,246 corporations that had disposed
of 1,393 preferred stock issues, with an aggregate of 107,200,000 snares,
having a total par or stated value of more than $5,128,000,000. The
distribution of these issues by industrial classification of corporations
was as follows:

Type of industry

Number of issues

Number of shares
(000 omitted)

Amount
(000,000 omitted)

Industrial | 1,049 | 74,769 | $3,334
Public utility | 116 | 11,528 | 607
Financial | 209 | 16,964 | 799
Railroad | 19 | 3,936 | 387
Total | 1,393 | 107,200 | $5128
The proportion of the dollar volume of all preferred-stock issues that
were convertible varied from 4.4 per cent in 1921 to 71 per cent in 1929.
The percentage for each of the years from 1919 to 1931 was as follows:
^1 Submitted in partial fulfillment of the requirements for the PhD. degree at Ohio
State University in 1940 under the title "Convertible Securities."  Unpublished.