DP15750 Which Factors Play a Role in Coco Issuance? Evidence from European Banks.

Author(s): Theo Vermaelen, Sara Wagner, Christian C Wolff
Publication Date: February 2021
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Programme Areas: Financial Economics, International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15750

This paper explores empirically the reasons why some banks issue Contingent Convertible Bonds while others do not. For this purpose we use a binary logistic model and control for the determinants suggested by the literature on optimal capital structure which considers four drivers of capital structure: corporate taxes, costs of financial distress, agency costs and asymmetric information.. Our findings suggest that the banks with bigger size and those with higher Tier 1 capital, higher net loans, higher wholesale funding, lower level of leverage and lower risk weighted assets have a higher tendency to issue CoCos. Our results also suggest that banks in countries with higher annual growth rate of GDP per capita and those listed as G-SIBs are more likely to issue CoCos.