Determinants of CoCo issuance: liquidity and risk incentives

IF 2 Q2 BUSINESS, FINANCE

Journal of Financial Regulation and Compliance Pub Date : 2022-03-17 DOI:10.1108/jfrc-09-2021-0080

B. Abdallah, Francisco Rodríguez Fernández

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引用次数: 1

Abstract

Purpose This paper aims to study the impact of (regulatory and nonregulatory) liquidity on contingent convertible (CoCo) issuance and the relationship between CoCos and asset quality. Design/methodology/approach The analysis of this study comprises two stages. In the first stage, the authors used a logit model to test whether banks with riskier assets as well as lower solvency and (regulatory and nonregulatory) liquidity are more likely to issue CoCos. In the second stage, the authors used univariate analysis and fixed effects regression to measure the impact of Additional Tier 1 (AT1) CoCos on the quality of the issuer’s assets. Findings The study shows that regulatory liquidity ratios are negatively related to CoCo issuance. This study also finds that the likelihood to issue CoCo is higher when banks have lower regulatory capital or are less risky. Asset quality is found to not change significantly after the issuance. All in all, these results suggest that while solvency regulation is primarily regarded as the main motivation for CoCo issuance, liquidity regulation also matters. Research limitations/implications Despite the fact that CoCos have been emerging as an alternative way to help banks meet regulatory capital requirements, the paper argues that the relation between liquidity regulation and CoCos should be taken into account. Originality/value This study presents an empirical analysis on the CoCos instrument, focusing on the relationship between AT1 CoCos and liquidity regulation. Therefore, it serves to fill a gap in the literature on the underlying forces behind CoCo issuance. Moreover, this study measures the impact of AT1 CoCos issuance on bank risk, particularly on the quality of the issuer’s assets.

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CoCo发行的决定因素：流动性和风险激励

目的研究（监管性和非监管性）流动性对或有可转换债券发行的影响，以及可转换债券与资产质量之间的关系。设计/方法论/方法本研究的分析分为两个阶段。在第一阶段，作者使用logit模型来测试资产风险较高、偿付能力和（监管和非监管）流动性较低的银行是否更有可能发行CoCos。在第二阶段，作者使用单变量分析和固定效应回归来衡量额外一级CoCos对发行人资产质量的影响。研究结果表明，监管流动性比率与CoCo发行呈负相关。这项研究还发现，当银行的监管资本较低或风险较低时，发行CoCo的可能性较高。发行后资产质量未发生重大变化。总之，这些结果表明，虽然偿付能力监管主要被视为CoCo发行的主要动机，但流动性监管也很重要。研究局限性/含义尽管CoCos已成为帮助银行满足监管资本要求的一种替代方式，但本文认为，应考虑流动性监管与CoCos之间的关系。原创性/价值本研究对CoCos工具进行了实证分析，重点关注AT1 CoCos与流动性监管之间的关系。因此，它有助于填补关于CoCo发行背后潜在力量的文献空白。此外，本研究衡量了AT1 CoCos发行对银行风险的影响，特别是对发行人资产质量的影响。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Journal of Financial Regulation and Compliance BUSINESS, FINANCE-

CiteScore

2.60

自引率

11.10%

发文量

期刊介绍： Since its inception in 1992, the Journal of Financial Regulation and Compliance has provided an authoritative and scholarly platform for international research in financial regulation and compliance. The journal is at the intersection between academic research and the practice of financial regulation, with distinguished past authors including senior regulators, central bankers and even a Prime Minister. Financial crises, predatory practices, internationalization and integration, the increased use of technology and financial innovation are just some of the changes and issues that contemporary financial regulators are grappling with. These challenges and changes hold profound implications for regulation and compliance, ranging from macro-prudential to consumer protection policies. The journal seeks to illuminate these issues, is pluralistic in approach and invites scholarly papers using any appropriate methodology. Accordingly, the journal welcomes submissions from finance, law, economics and interdisciplinary perspectives. A broad spectrum of research styles, sources of information and topics (e.g. banking laws and regulations, stock market and cross border regulation, risk assessment and management, training and competence, competition law, case law, compliance and regulatory updates and guidelines) are appropriate. All submissions are double-blind refereed and judged on academic rigour, originality, quality of exposition and relevance to policy and practice. Once accepted, individual articles are typeset, proofed and published online as the Version of Record within an average of 32 days, so that articles can be downloaded and cited earlier.