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    Contingent Convertible Bonds: payoff structures and incentive effects

    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 (Unpublished)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)
    School: School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Ken Hori
    Date Deposited: 06 Dec 2018 15:12
    Last Modified: 13 Feb 2021 19:21
    URI: https://eprints.bbk.ac.uk/id/eprint/25371

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