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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title The Agency of CoCos: Why Contingent Convertible Bonds Aren’t for Everyone
Organization Unit
Authors
  • Roman Goncharenko
  • Steven Ongena
  • Asad Rauf
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title Journal of Financial Intermediation
Publisher Elsevier
Geographical Reach international
ISSN 1042-9573
Volume 48
Page Range 100882
Date 2021
Abstract Text 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.
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Digital Object Identifier 10.1016/j.jfi.2020.100882
Other Identification Number merlin-id:19608
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