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Announcement Effects of Contingent Convertible Securities: Evidence from the Global Banking Industry
Author(s) -
Ammann Manuel,
Blickle Kristian,
Ehmann Christian
Publication year - 2017
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12092
Subject(s) - convertible bond , bankruptcy , convertible , equity (law) , stock price , business , stock (firearms) , monetary economics , share price , economics , financial system , bond , financial economics , finance , stock exchange , mechanical engineering , paleontology , structural engineering , law , series (stratigraphy) , political science , engineering , biology
This paper investigates the announcement effects of CoCo bonds issued by global banks between January 2009 and June 2014. Using a sample of 34 financial institutions, we examine abnormal stock price reactions and CDS spread changes before and after the announcement dates. We find that the announcement of CoCos correlates with positive abnormal stock returns and negative CDS spread changes in the immediate post‐announcement period. We explain these effects with a set of theories including the lowered probability of costly bankruptcy proceedings, a signaling framework based on pecking order theory and the cost advantage of CoCos over equity (tax shield).