 Soft going-concern capital buffer? CoCo non-calls and revealed bank distressKaihua Deng, Qilong Fu and Dongxia Huang Journal of Corporate Finance, 2025, vol. 93, issue C Abstract: We document a significant widening of trading spreads for contingent convertible capital securities after banks announce non-redemption. The effect is more pronounced in less capitalized and less profitable banks, and spills over to CoCos issued by other banks in the same city, especially when the non-redemption announcements are short-noticed. Non-redemption has further led to higher issuance costs and a substantial drop in new CoCo issues. Troubled banks have shifted towards cutting payouts, paring down risky assets, booking less non-performing loans and decreasing loan loss provisions to repair their risk-based capital ratios, while equity-to-asset remains below the pre-event levels afterwards. Moreover, using loan-level data for listed firms, we find a persistent decline in bank lending to smaller and non-state borrowers following non-calls. These makeshift adjustments are further reflected in a lower Z-score. By contrast, senior debtholders and depositors retain the protection and are largely intact. Keywords: Capital constraints; Contingent convertible capital securities; Credit spread; Regulatory capital (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:93:y:2025:i:c:s0929119925000707 DOI: 10.1016/j.jcorpfin.2025.102802 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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