On Equilibrium When Contingent Capital Has a Market Trigger: A Correction to Sundaresan and Wang Journal of Finance (2015)

George Pennacchi and Alexei Tchistyi

Journal of Finance, 2019, vol. 74, issue 3, 1559-1576

Abstract: This paper identifies an error in Sundaresan and Wang (2015, hereafter SW) that invalidates its Theorem 1. The paper develops a model of contingent capital (CC) with a stock price trigger that is consistent with SW's framework and yields closed‐form solutions for stock and CC prices. Yet, the model shows that unique stock price equilibria exist for a broader range of CC contractual terms than those required by SW. Specifically, when conversion terms benefit CC investors and penalize shareholders, a unique equilibrium can exist rather than the multiple equilibria stated in SW.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://doi.org/10.1111/jofi.12762

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:74:y:2019:i:3:p:1559-1576

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().