The adverse effect of contingent convertible bonds on bank stability / Melina Ludolph ; editor: Halle Institute for Economic Research (IWH) - Member of the Leibniz Association
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The adverse effect of contingent convertible bonds on bank stability
Discovery
1858121841
URN
urn:nbn:de:gbv:3:2-982223
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Publication history
Halle (Saale), Germany : Halle Institute for Economic Research (IWH) - Member of the Leibniz Association, [2023?]
Content
1 Online-Ressource (III, 60 Seiten, 1,43 MB) : Diagramme
Edition
This version: August 27, 2023
Language
eng
Comment
Literaturverzeichnis: Seite 32-37
Abstract
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.
Series
IWH-Diskussionspapiere ; 2022, no. 1 (January 2022) [rev.] ppn:837399270