Working Paper: CEPR ID: DP15750
Authors: Christian C. P. Wolff; Theo Vermaelen; Sara Wagner
Abstract: This paper explores empirically the reasons why some banks issue Contingent Convertible Bonds while others do not. For this purpose we use a binary logistic model and control for the determinants suggested by the literature on optimal capital structure which considers four drivers of capital structure: corporate taxes, costs of financial distress, agency costs and asymmetric information.. Our findings suggest that the banks with bigger size and those with higher Tier 1 capital, higher net loans, higher wholesale funding, lower level of leverage and lower risk weighted assets have a higher tendency to issue CoCos. Our results also suggest that banks in countries with higher annual growth rate of GDP per capita and those listed as G-SIBs are more likely to issue CoCos.
Keywords: N/A
JEL Codes: N/A
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bank characteristics (size) (G21) | likelihood of issuing CoCos (G33) |
| Bank characteristics (Tier 1 capital) (G21) | likelihood of issuing CoCos (G33) |
| Bank characteristics (net loans) (G21) | likelihood of issuing CoCos (G33) |
| Financial health indicators (profitability, liquidity, leverage) (G32) | likelihood of issuing CoCos (G33) |
| Macroeconomic conditions (GDP per capita growth) (O11) | likelihood of issuing CoCos (G33) |
| Risk-weighted assets (G32) | likelihood of issuing CoCos (G33) |