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

Goncharenko, Roman; Ongena, Steven; Rauf, Asad (2021). The Agency of CoCos: Why Contingent Convertible Bonds Aren’t for Everyone. Journal of Financial Intermediation, 48:100882.

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.

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Scope:Discipline-based scholarship (basic research)
Language:English
Date:1 October 2021
Deposited On:04 Dec 2020 08:01
Last Modified:24 Oct 2024 01:37
Publisher:Elsevier
ISSN:1042-9573
OA Status:Green
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
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