The present Dissertation’s academic research question addresses the announcement effects of contingent convertible bonds (CoCo) on the issuing bank’s stock returns and Credit DefaultSwap (CDS) spreads, in the European banking system, over the period between January 2009 and July 2021. Using data retrieved from Refinitiv Eikon and S&P Capital IQ databases, the Event Study methodology is employed, with an event window of 10 days before and after the announcement date of CoCo’s issues. Empirical findings suggest significantly positive abnormal stock returns and significantly negative CDS spread changes, mainly in the immediate post-announcement period. Effects on equity returns find an explanation with a set of theories, including (i) bank’s recapitalization and reduced probability of default; (ii) signalling framework based on the Pecking Order Theory; (iii) cost advantage in the measure of tax shield;(iv) debt overhang management; and (v) risk-taking incentives. In addition, effects on CDS spreads find an explanation in the CoCo bonds’ loss absorbency capacity, which reduces the likelihood of the issuing banks’ bankruptcy, and narrows the Credit Default Swap spreads.
|Date of Award||18 Oct 2021|
- Universidade Católica Portuguesa
|Supervisor||Diptes Chandrakante Prabhudas Bhimjee (Supervisor)|
- CoCo bonds
- Abnormal returns
- CDS spreads
- Event study