Contingent Capital Trigger Effects: Evidence from Liability Management Exercises. Issue 2 (19th June 2019)

• Record Type: Journal Article
• Authors: Vallée, Boris
• Is Part Of: Review of corporate finance studies. Volume 8:Issue 2(2019:Sep.)
• Page Start: 235
• Page End: 259
• Publication Date: 2019-06-19
• Subjects: G21 -- G28 -- G01 -- G14; Corporations -- Finance -- Periodicals; 338.6041
• DOI: 10.1093/rcfs/cfz004
• Languages: English
• ISSNs: 2046-9128

Abstract

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. Received February 8, 2019; editorial decision May 16, 2019 by Editor Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.