Preferred Equity/Total Equity (%)
We penalise companies that have issued preferred equity and where it is becoming increasingly material. Preference shares tend to be issued by heavily leveraged companies, sometimes as a tax-advantaged way to increase their borrowing power. Only 5% of companies within our database of 16,000 have issued some form of preference shares. Philippine, Russian and Korean companies have the highest incidence of issuance, at 14-33%, although amounts tend to be immaterial relative to total equity.
Our accounting screen is set to trigger a red flag when companies have issued preference shares and/or when there is an abnormally large increase relative to the normal rate of change amongst global peers over one and three years. This latter red flag is triggered when the increase in preference shares/total equity exceeds the 80th percentile relative to the change experienced by the global sample between 2010 and 2015.