Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305189 
Authors: 
Year of Publication: 
2024
Series/Report no.: 
IWH Discussion Papers No. 1/2022
Version Description: 
This version: September 3, 2024
Publisher: 
Halle Institute for Economic Research (IWH), Halle (Saale)
Abstract: 
This paper examines the effect of CoCo bonds that qualify as additional tier 1 capital on bank stability and reporting. The results reveal a significant reduction in the distance to insolvency following the hybrid bond issuance due to increased earnings volatility. Banks report less stable net income due to more volatile loss provisions, which increases earnings opacity rather than reflects changes in asset quality. The findings are consistent with the premise that persistent uncertainty and misconceptions among investors about bail-in likelihoods limit their monitoring engagement, which results in banks becoming less transparent.
Subjects: 
AT1 capital
bank stability
Basel III
CoCo bonds
earnings opacity
JEL: 
G21
G28
G32
M41
Document Type: 
Working Paper

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