Header

UZH-Logo

Maintenance Infos

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


Goncharenko, Roman; Ongena, Steven; Rauf, Asad (2020). The Agency of CoCos: Why Contingent Convertible Bonds Aren’t for Everyone. Journal of Financial Intermediation:Epub ahead of print.

Abstract

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.

Abstract

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.

Statistics

Citations

Dimensions.ai Metrics

Altmetrics

Downloads

2 downloads since deposited on 04 Dec 2020
2 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:11 August 2020
Deposited On:04 Dec 2020 08:01
Last Modified:05 Dec 2020 21:00
Publisher:Elsevier
ISSN:1042-9573
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jfi.2020.100882
Related URLs:https://www.sciencedirect.com/science/article/abs/pii/S104295732030036X (Publisher)
Other Identification Number:merlin-id:19608

Download

Closed Access: Download allowed only for UZH members

Content: Accepted Version
Filetype: PDF - Registered users only until 11 August 2022
Size: 725kB
View at publisher
Embargo till: 2022-08-11