Contingent convertible bonds and their impact on risk-taking of managers

Thomas Walther and Tony Klein
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Tony Klein: Chair of Finance and Financial Services, Faculty of Business and Economics, Technische Universität Dresden, 01062 Dresden, Germany

Cuadernos de Economía - Spanish Journal of Economics and Finance, 2015, vol. 38, issue 106, 54-64

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.

Keywords: Contingent; convertible; bonds.; Executive; compensation.; Incentives.; Inside; debt.; Risk-taking. (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 G34 J31 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:cud:journl:v:38:y:2015:i:106:p:54-64

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