< Back to previous page

Publication

The Agency of CoCos: Why Contingent Convertible Bonds Aren't for Everyone

Journal Contribution - Journal Article

Some regulators grant contingent convertible bonds (CoCos) the status of “going-concern” capital. Theory, however, suggests that CoCos can induce debt overhang, thereby amplifying the leverage ratchet effect. In this paper, we provide empirical evidence consistent with this theory. Our results suggest that banks with more volatile assets (riskier banks) (i) are less likely to issue CoCos, (ii) conditional on having CoCos outstanding are less likely to issue equity, and (iii) prefer issuing equity over CoCos. Since riskier banks suffer from more debt overhang it is more costly for them to issue CoCos.
Journal: Journal of Financial Intermediation
ISSN: 1042-9573
Volume: 48
Publication year:2021
BOF-keylabel:yes
IOF-keylabel:yes
BOF-publication weight:1
CSS-citation score:2
Authors:International
Authors from:Higher Education
Accessibility:Closed