Most regulators grant contingent convertible bonds (CoCos) the status of equity. Theory, however, suggests that CoCos … can induce debt overhang, thereby, increasing the cost of issuing equity. First, we theoretically investigate how the … counterparts. Since under Basel III banks are expected to raise equity prior to CoCo conversion, riskier banks that anticipate …

crucial role in banks' ability to successfully issue CoCos. The agency costs may be higher for CoCos than for equity … explaining why we observe riskier or lowly capitalized banks to issue equity rather than CoCos. …