Contingent Capital Trigger Effects: Evidence from Liability Management Exercises

Vallee, Boris

doi:10.2139/ssrn.2346376

Download This Paper

Open PDF in Browser

Add Paper to My Library

Contingent Capital Trigger Effects: Evidence from Liability Management Exercises

HEC Paris Research Paper No. FIN-2013-1014

35 Pages Posted: 29 Oct 2013 Last revised: 18 Jul 2019

See all articles by Boris Vallee

Boris Vallee

Harvard Business School - Finance Unit

Date Written: June 4, 2019

Abstract

This paper studies liability management exercises (LME) by banks, which have comparable regulatory capital effects than contingent capital triggers. LMEs are concentrated on low capitalization situations, both in the cross-section and in the time series and are frequently associated with equity issuances. These exercises prove effective at improving bank capitalization levels. The market reaction to LMEs is positive and mostly accrues to debt holders. These findings strengthen the case for innovative liabilities securities as a tool to improve bank resilience.

Keywords: Contingent Capital, Financial Distress, Debt Overhang, Financial Institutions

JEL Classification: G21, G28, G01, G14

Suggested Citation: Suggested Citation

Vallee, Boris, Contingent Capital Trigger Effects: Evidence from Liability Management Exercises (June 4, 2019). HEC Paris Research Paper No. FIN-2013-1014, Available at SSRN: https://ssrn.com/abstract=2346376 or http://dx.doi.org/10.2139/ssrn.2346376