Hori, Kenjiro and Martin Cerón, Jorge (2018) Contingent Convertible Bonds: payoff structures and incentive effects. Working Paper. Birkbeck, University of London, London, UK. (Unpublished)
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Abstract
This paper analyses two aspects of contingent convertible (Coco) bonds. First, we establish and compare in detail the payoffs to equity and bond holders in different bail-out/in schemes, namely no bail-out/in, government bail-out, equity-conversion Coco bail-in and write-off Coco bail-in. This reveals that the equityholders progressively gain extra incremental option positions at each step of the bail-out/in schemes in the order listed. Second, we investigate two types of agency costs: the wealth-transfer problem and the value destruction problem. We show that these are aggravated under equity-conversion Coco bail-ins, and are even higher under write-off Coco bail-in for larger asset values, suggesting inherent structural incentive issues associated with these bonds.
Metadata
| Item Type: | Monograph (Working Paper) |
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| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Ken Hori |
| Date Deposited: | 06 Dec 2018 15:12 |
| Last Modified: | 02 Aug 2023 17:46 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/25371 |
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