On the Cash-Flow and Control Rights of Contingent Capital

Material type: 文書・図像類

Author: Mitchell, Chris

Publisher: The Institute of Social and Economic Research, Osaka University

Publication date: 2018-11-05

Material Format: Paper

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Note (General)：: This paper develops a model of banking to study the risk-taking consequences of contingent capital (CC). It begins with the observation that partial c...

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Paper

Material Type: 文書・図像類
Title: On the Cash-Flow and Control Rights of Contingent Capital
Author/Editor: Mitchell, Chris
Author Heading: Mitchell, Chris
Publication, Distribution, etc.: The Institute of Social and Economic Research, Osaka University
Publication Date: 2018-11-05
Publication Date (W3CDTF): 2018-11-05
Periodical title: Institute of Social and Economic Research Discussion Papers
No. or year of volume/issue: 1044
Volume: 1044
Pages: 1-36
Text Language Code: eng
Subject Heading: Contingent Capital
Corporate Governance
Bank Regulation
Blockholders
Shareholder Activism
Portfolio Choice
Target Audience: 一般
Note (General): This paper develops a model of banking to study the risk-taking consequences of contingent capital (CC). It begins with the observation that partial conversion of CC provides its owners with a portfolio of equity and debt. Since the former (latter) asset typically induces a preference for risk taking (safety), the net preference of CC-holders upon conversion should depend on their relative holdings of each asset, which in turn, depends on the amount of CC converted. In addition to acquiring cash-flow rights, these conversions provide CC-holders with equity control rights, which afford them greater influence over management's portfolio selection. The paper demonstrates that rational shareholders - that anticipate these endogenous preferences and equity control rights - may be inclined to either: (1) dilute their own equity stakes through "excessive" risk taking in order to create risk-loving and influential CC-holders; or (2) rule-out conversion altogether through "excessive" safety, thereby preempting the creation of influential and safety-loving CC-holders. The results also suggest that higher CC-to-equity ratios can reduce the likelihood of reaching an "excessive" risk-taking equilibria.
References (URI): http://www.iser.osaka-u.ac.jp/library/dp/2018/DP1044.pdf
URI
http://www.iser.osaka-u.ac.jp/library/dp/2018/DP1044.pdf
Data Provider (Database): 国立情報学研究所 : 学術機関リポジトリデータベース（IRDB）（機関リポジトリ）
https://irdb.nii.ac.jp
Original Data Provider (Database): 大阪大学 : 大阪大学学術情報庫　桜華