Contingent Convertible Bonds and their Impact on Risk-Taking of Managers

T. Walther, Tony Klein

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

This paper discusses how contingent convertible bonds (CCB) influence the risk-taking behaviour of managers. A methodology to measure the impact is presented. The results show that the decision of issuing CCB to finance company assets sets incentives to managers to increase risk, if it is not adjusted to the compensation system. However, if the remuneration of managers is adjusted simultaneously with the issuance, e.g. with internal debt, the drawbacks of the sole compensation with stock options can be equalised. Furthermore, it was found that CCB does have an impact on the risk-taking behaviour, while CCB does not change the incentive to increase the company value at all.
Original languageEnglish
Pages (from-to)54-64
JournalCuadernos de Economía
Volume38
Issue number106
DOIs
Publication statusPublished - 2015
Externally publishedYes

Keywords

  • Contingent Convertible Bonds
  • Executive Compensation
  • Incentives
  • Inside Debt
  • Risk-Taking

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