On the Design of Contingent Capital with a Market Trigger

• 成果类型: Article
• 署名作者: Sundaresan, Suresh; Wang, Zhenyu
• 署名单位: Columbia University; Indiana University System; Indiana University Bloomington; IU Kelley School of Business
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12134
• 发表日期: 2015
• 页码: 881-920
• 关键词: bankruptcy; exercise

摘要

Contingent capital (CC), which aims to internalize the costs of too-big-to-fail in the capital structure of large banks, has been under intense debate by policy makers and academics. We show that CC with a market trigger, in which direct stakeholders are unable to choose optimal conversion policies, does not lead to a unique competitive equilibrium unless value transfer at conversion is not expected ex ante. The no value transfer restriction precludes penalizing bank managers for taking excessive risk. Multiplicity or absence of equilibrium introduces the potential for price uncertainty, market manipulation, inefficient capital allocation, and frequent conversion errors.