Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263937 
Year of Publication: 
2022
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2022-017/IV
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
We assess the impact of contingent convertible (CoCo) bonds and the wealth transfers they imply conditional on conversion on the risk-taking behaviour of the issuing bank. We also test for regulatory arbitrage: do banks try to maintain risk-taking incentives by issuing CoCo bonds, when regulators reduce them through higher capitalization ratios? While we test for, and reject sample selection bias, we show that CoCo bonds issuance has a strong positive effect on risk-taking behaviour, particularly with conversion parameters that reduce dilution of existing shareholders upon conversion. Higher economic volatility amplifies the impact of CoCo bonds on risk-taking.
Subjects: 
contingent convertible bonds
risk-taking
bank capital structure
selection bias
JEL: 
G01
G11
G21
G32
Document Type: 
Working Paper

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