Hybrid Securities

Summarizing our analysis thus far, equity represents a residual claim on the cash flows and assets of the firm and is generally associated with management control. Debt, on the other hand, represents a fixed claim on the cash flows and assets of the firm and is usually not associated with management control. There are a number of securities that do not fall neatly into either of these two categories; rather, they share some characteristics with equity and some with debt. These securities are called hybrid securities.

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