Announcement Effects of Contingent Convertible Securities: Evidence from the Global Banking Industry

39 Pages Posted: 12 Dec 2015 Last revised: 3 Mar 2016

Manuel Ammann

University of St. Gallen - School of Finance

Christian Ehmann

University of St. Gallen - School of Finance

Kristian Blickle

University of St. Gallen - School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 10, 2015

Abstract

This paper investigates the announcement effects of contingent convertible securities (CoCo bonds) issued by global banks between January 2009 and June 2014. Using a sample of 34 financial institutions and 87 CoCo bond issues, we examine abnormal stock price reactions and CDS spread changes before and after the announcement dates. We find that the announcement of CoCo bonds correlates with positive abnormal stock returns and negative CDS spread changes in the immediate post-announcement period. The effects are most pronounced for first-time issues. We explain the CDS spread changes by the lower probability of costly bankruptcy proceedings and the abnormal stock returns by a signaling framework that is based on pecking order theory and the cost advantage over equity (tax shield). We also examine the factors that are associated with the post-announcement abnormal stock returns and find that the existence of issuer call provisions reduces the positive abnormal returns.

Keywords: Contingent Convertible Securities, CoCo Bonds, Announcement Effects, Event Study

JEL Classification: G01, G14, G21

Suggested Citation

Ammann, Manuel and Ehmann, Christian and Blickle, Kristian, Announcement Effects of Contingent Convertible Securities: Evidence from the Global Banking Industry (December 10, 2015). European Financial Management, Forthcoming; University of St.Gallen, School of Finance Research Paper No. 2015/25. Available at SSRN: https://ssrn.com/abstract=2701938 or http://dx.doi.org/10.2139/ssrn.2701938

Manuel Ammann (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Christian Ehmann

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Kristian Blickle

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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