Increasing Profitability Through Contingent Convertible Capital: Empirical Evidence From European Banks

45 Pages Posted: 24 Sep 2018 Last revised: 22 Dec 2019

See all articles by Matthias Petras

Matthias Petras

University of Cologne - Department of Banking; University of Cologne; University of Cologne - Faculty of Management, Economics and Social Sciences

Date Written: September 6, 2018

Abstract

This study investigates the consequences of the use of additional tier 1 (AT1) capital instruments on bank profitability. It is motivated by fact that the use of contingent convertible bonds (CoCo-bonds) instead of equity offers a tax-shield and positive risk-taking incentives. I empirically analyse a panel dataset of 231 banks from EEA-countries as well as Switzerland from 2014 to 2018. My analysis shows that the potential tax-shield is a relevant determinant of the use of CoCo-bonds. Subsequently, I find that the use of CoCo-bonds instead of equity as AT1-capital has significant and positive effects on bank profitability.

Keywords: CoCo-Bonds, Contingent Capital, Capital Regulation, Bank Profitability, Capital Structure

JEL Classification: G21, G28, G32

Suggested Citation

Petras, Matthias, Increasing Profitability Through Contingent Convertible Capital: Empirical Evidence From European Banks (September 6, 2018). Available at SSRN: https://ssrn.com/abstract=3245256 or http://dx.doi.org/10.2139/ssrn.3245256

Matthias Petras (Contact Author)

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://www.bankseminar.uni-koeln.de/en/seminar/staff/staff/petras/

University of Cologne ( email )

Albertus Magnus Platz
Cologne, NRW 50923
Germany

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

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