Chinese write-down bonds: issuance and bank capital structure

This paper investigates the impact of Chinese write-down bond issuance on issuing bank’s capital structure. We divide the capital structure into asset allocation (financial leverage ratio) and capital allocation (the proportion of Tier 1 capital). We find that the issuance of write-down bonds has a positive effect on the issuing bank’s asset allocation, and the effect is relatively greater for lower leveraged banks. The write-down bond issuance has no effect on capital allocation for the whole sample, but it is inversely related to capital allocation for banks with high Tier 1 capital ratios. For banks that have issued write-down bonds, the issuing amount of write-down bonds has a significant impact on asset allocation, while the impact on capital allocation is not significant. Since write-down bonds are considered to be gone concern capital, and Tier 1 capital is considered to be going concern capital, the issuance of write-down bonds has no significant effect on the proportion of Tier 1 capital for the whole sample.