IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp24107.html
   My bibliography  Save this paper

From Credit Spread of CoCo Bonds to Franchise Value

Author

Listed:
  • Jiacheng Chen

    (University of Zurich - Department Finance; Climate Asset Management)

  • Walter Farkas

    (University of Zurich - Department Finance; Swiss Finance Institute; ETH Zürich)

Abstract

We establish a theoretical framework that connects the credit spread of Contingent Convertible (CoCo) bonds to the evaluation of the franchise value of their issuers. This approach improves our capacity to assess franchise value with higher frequency by incorporating both market reactions and expectations. Our analysis extends to comparing franchise value assessments derived from this approach with those obtained using previous methodologies, demonstrating consistent relationships with various metrics, such as Tobin's Q ratio. Furthermore, we explore several applications, including a methodological framework for optimizing capital levels in banking institutions. This framework addresses a value-maximization problem, integrating considerations of franchise value alongside the option to default.

Suggested Citation

  • Jiacheng Chen & Walter Farkas, 2024. "From Credit Spread of CoCo Bonds to Franchise Value," Swiss Finance Institute Research Paper Series 24-107, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp24107
    as

    Download full text from publisher

    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5053189
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp24107. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.