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Type | Journal Article |
Scope | Discipline-based scholarship |
Title | The Agency of CoCos: Why Contingent Convertible Bonds Aren’t for Everyone |
Organization Unit | |
Authors |
|
Item Subtype | Original Work |
Refereed | Yes |
Status | Published in final form |
Language |
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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. |
Related URLs | |
Digital Object Identifier | 10.1016/j.jfi.2020.100882 |
Other Identification Number | merlin-id:19608 |
PDF File | Download from ZORA |
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