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On the cash-flow and control rights of contingent capital

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  • Mitchell, Chris

Abstract

Partial conversion of contingent capital (CC) provides its owners with a portfolio of equity and debt. Since the cash-flow rights on equity (debt) typically induce a preference for risk taking (safety), the net preference of CC-holders upon conversion will depend on their relative holdings of each asset, which in turn, depends on the amount of CC converted. Conversions also provide CC-holders with equity-control rights, which afford them greater influence over management. Taking into account these cash-flow/control rights, initial shareholders may find it optimal to: (1) select high-risk assets that create influential and risk-loving CC-holders, or (2) select low-risk assets that forestall the influence of safety-loving CC-holders.

Suggested Citation

  • Mitchell, Chris, 2024. "On the cash-flow and control rights of contingent capital," Journal of Banking & Finance, Elsevier, vol. 166(C).
    • Handle: RePEc:eee:jbfina:v:166:y:2024:i:c:s0378426624001158
    DOI: 10.1016/j.jbankfin.2024.107198
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    More about this item

    Keywords

    Contingent capital; Bank regulation; Capital Structure; Corporate governance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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