The ratio of the yields on short-term tax-exempt and taxable bonds exhibits a sawtooth pattern that is consistent with th e impacts of tax deferments from dates on which interest payments are received to dates on which the resulting tax payments are paid. The effect of the tax deferment at turns of calendar years does not diff er appreciably from the effect at the turn of any other tax quarter. Investors with tax payment schedules that differ from that of the investor that is indifferent between investing in taxable and tax-exempt bonds may benefit from tax-related timing strategies for investing in these bonds. Issuers may benefit from tax-related timin g strategies for scheduling interest payments.

Calls of in-the-money convertible preferred stock typically induce dividend savings for the firm, since preferred dividends exceed common stock dividends. Prior research finds that these savings are negatively related to stock returns at call announcement and argues that the market expects managers to abuse the increased free cash flow. This paper finds that dividend savings are closely related to call size, suggesting other explanations. Larger calls experience a more negative announcement reaction. Consistent with temporary liquidity effects, there is a price reversal during the conversion period, which is greater for larger calls.

ABSTRACT The ratio of the yields on short‐term tax‐exempt and taxable bonds exhibits a sawtooth pattern that is consistent with the impacts of tax deferments from dates on which interest payments are received to dates on which the resulting tax payments are paid. The effect of the tax deferment at turns of calendar years does not differ appreciably from the effect at the turn of any other tax quarter. Investors with tax payment schedules that differ from that of the investor that is indifferent between investing in taxable and tax‐exempt bonds may benefit from tax‐related timing strategies for investing in these bonds. Issuers may benefit from tax‐related timing strategies for scheduling interest payments.