Optimal terms of contingent capital, incentive effects, and capital structure dynamics
Abstract
Contingent Convertible Bonds (CoCos) with conversion ratios that dilute issuer's shareholders generate incentives to preemptively raise equity capital to avoid triggering conversion. Our dynamic model provides an interior solution for the unique optimal conversion ratio and the capital structure policies that maximizes issuer's value net of deadweight costs. Preemptive recapitalization induced by moderately dilutive conversion terms leads to...
Paper Details
Title
Optimal terms of contingent capital, incentive effects, and capital structure dynamics
Published Date
Oct 1, 2020
Journal
Volume
64
Pages
101635 - 101635
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