The agency of CoCos: Why contingent convertible bonds are not for everyone

Roman Goncharenko*, Steven Ongena, Asad Rauf

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

8 Citations (Scopus)
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Some regulators grant contingent convertible bonds (CoCos) the status of "going-concern" capital. Theory, however, suggests that CoCos can induce debt overhang, thereby amplifying the leverage ratchet effect. In this paper, we provide empirical evidence consistent with this theory. Our results suggest that banks with more volatile assets (riskier banks) (i) are less likely to issue CoCos, (ii) conditional on having CoCos outstanding are less likely to issue equity, and (iii) prefer issuing equity over CoCos. Since riskier banks suffer from more debt overhang it is more costly for them to issue CoCos.

Original languageEnglish
Article number100882
Number of pages22
JournalJournal of Financial Intermediation
Publication statusPublished - Oct-2021


  • CoCos
  • Contingent convertible bonds
  • Bank capital structure
  • Debt overhang
  • Basel III
  • RISK
  • DEBT

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