Background
A deferred share is a specific type of company share where dividend payments can be postponed by the company. In this scenario, deferred dividends take precedence over dividends on lower-ranking shares until they are fully paid.
Historical Context
Deferred shares emerged from the need for companies to manage resources while balancing investor interests. They provide a mechanism for ensuring liquidity during times when free cash flow may be restricted, allowing companies to prioritize more critical financial obligations.
Definitions and Concepts
Deferred shares can typically be categorized under preferred or preference shares, which offer certain advantages to shareholders in terms of prioritizing dividend payments once the company resumes dividend distribution. The deferred payment increments over time must be settled before any dividends are issued to lower-ranking or ordinary shareholders.
Major Analytical Frameworks
Classical Economics
Classical economic theories do not specifically address deferred shares but recognize the significance of corporate structures in pursuing economic efficiency and growth.
Neoclassical Economics
In neoclassical economics, deferred shares balance the allocation of limited resources efficiently and minimize agency conflicts between shareholders and company management.
Keynesian Economics
From a Keynesian perspective, deferred shares may help stabilize companies during economic downturns by allowing them to defer dividend payments while prioritizing investment and operational expenditures to sustain economic activity.
Marxian Economics
Marxian economics may view deferred shares as another tool of capital to manage labour and capital interests. It emphasizes the potential control corporations wield over accruing and distributing profits.
Institutional Economics
Institutional economics would focus on how deferred shares are regulated, the legal implications, and who benefits within the broader context of financial markets and corporate governance.
Behavioral Economics
Behavioral economists might investigate how the introduction of deferred shares influences shareholder behavior, trust in management, and overall market sentiment towards the issuing company.
Post-Keynesian Economics
Post-Keynesian scholars might investigate deferred shares’ role in periods of financial stress and unemployment, viewing them as tools for stabilizing company finance and supporting long-term planning.
Austrian Economics
Austrian economists might appreciate deferred shares as mechanisms for voluntary arrangements reflecting agreements reached between fully informed and consenting shareholders and companies.
Development Economics
In development economics, deferred shares could aid emerging markets by providing mechanisms for sustaining corporate finance structures that support long-term capital investment strategies crucial for development.
Monetarism
Monetarist scholars might view deferred shares as instrument affecting the broader monetary base, especially in corporate finance’s role in contributing to the overall money supply through corporate equity schemes.
Comparative Analysis
Examining deferred shares requires understanding their various types, conditions attached for dividend deferral, and the specific triggering events for converting prior backed payments. Comparative data from multiple companies could show different impacts on shareholder returns and corporate financial stability.
Case Studies
Case studies on corporations that have successfully or unsuccessfully used deferred shares during financial restructuring will provide concrete examples of the real-world implications of deferred shares.
Suggested Books for Further Studies
- “Dividends and Dividend Policy” by H. Kent Baker
- “Corporate Financial Strategy” by Ruth Bender and Keith Ward
- “Principles of Corporate Finance” by Richard A. Brealey & Stewart C. Myers
Related Terms with Definitions
- Preferred Shares: A type of share that usually provides no voting rights but priority over common shares in dividend payments and asset liquidation.
- Convertible Shares: Shares that can be converted into a different type of equity, usually ordinary shares, under predetermined terms.
- Cumulative Dividend: A dividend that, if not paid when due, accumulates until the company can meet its dividend obligations.
