As the recent financial crisis unfolded, a new financial instrument -- contingent capital (“coco”) bonds -- was widely considered as a mechanism for promptly re-capitalizing over-levered financial institutions. Essentially, coco bonds would replace supervisory discretion about banks' capital...

This paper examines the impact of issuing contingent convertible (CoCo) bonds on bank risk. I apply a matching-based difference-in-differences approach to banklevel data for 246 publicly traded European banks and 61 CoCo issues from 2008−2018. My estimation results reveal that issuing CoCo...

In this paper, we analyze the effect of the conversion price of CoCo bonds on equity holders' incentives. First, we use an option-pricing context to show that CoCo bonds can magnify equity holders' incentives to increase the riskiness of assets and decrease incentives to raise new equity in a...

Contingent convertible capital (CoCo) is a debt instrument that converts to equity or is written off if the issuing bank fails to meet a distress threshold. The conversion increases the issuer's loss-absorption capacity, but results in wealth transfers between CoCo holders and shareholders,...