TY  - UNPD
A1  - Hesse, Henning
T1  - Incentive effects from write-down CoCo bonds: an empirical analysis
T2  - SAFE working paper series ; No. 212
N2  - Departing from the principle of absolute priority, CoCo bonds are particularly exposed to bank losses despite not having ownership rights. This paper shows the link between adverse CoCo design and their yields, confirming the existence of market monitoring in designated bail-in debt. Specifically, focusing on the write-down feature as loss absorption mechanism in CoCo debt, I do find a yield premium on this feature relative to equity-conversion CoCo bonds as predicted by theoretical models. Moreover, and consistent with theories on moral hazard, I find this premium to be largest when existing incentives for opportunistic behavior are largest, while this premium is non-existent if moral hazard is perceived to be small. The findings show that write-down CoCo bonds introduce a moral hazard problem in the banks. At the same time, they support the idea of CoCo investors acting as monitors, which is a prerequisite for a meaningful role of CoCo debt in banks' regulatory capital mix.
T3  - SAFE working paper - 212 
KW  - CoCo bonds
KW  - contingent capital
KW  - endogenous risk
KW  - capital structure
KW  - incentives
KW  - monitoring
Y1  - 2018
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/46678
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-466786
UR  - https://ssrn.com/abstract=2797203
PB  - SAFE
CY  - Frankfurt am Main
ER  -