The adverse effect of contingent convertible bonds on bank stability

Arbeitspapier

This paper examines the effect of CoCo bonds that qualify as additional tier 1 capital on bank fundamentals. The results reveal a significant reduction in the distance to insolvency following the hybrid bond issuance due to increased earnings volatility. Further analyses suggest a link between CoCo issuance and more active earnings management, evidenced by a higher standard deviation of loan loss provisions and impairment charges. The findings substantiate long-standing theoretical hypotheses suggesting that the regulatory design requirements for going-concern CoCos adversely affect bank stability. Furthermore, they correspond to the notion that private monitoring is largely absent as a corrective measure due to prevailing uncertainties and information frictions.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: IWH Discussion Papers ; No. 1/2022

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Thema: AT1 capital ; bank stability ; Basel III ; CoCo bonds ; earnings volatility

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Ludolph, Melina
• Ereignis: Veröffentlichung
• (wer): Halle Institute for Economic Research (IWH)
• (wo): Halle (Saale)
• (wann): 2023

Weitere Informationen

• Handle: http://hdl.handle.net/10419/274667
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ