 Contingent capital, Tobin’s q and corporate capital structureBo Yang and Liu Gan The North American Journal of Economics and Finance, 2021, vol. 55, issue C Abstract: This paper examines the impact of contingent convertible (CoCo) financing on a firm’s Tobin’s q. We first construct an endogenous dynamic investment and capital accumulation model for pricing firm bonds under CoCo financing based on the neoclassical investment q theory and derive its semi-closed expression. Then, we numerically explore the mechanism by which CoCo financing affects the firm’s industrial investment strategy and Tobin’s q under the firm’s optimal capital structure. We prove the following: (i) After the conversion of CoCo, the measurement error between the Tobin’s average q and the Tobin’s marginal q decreases along with the increase in the firm’s capital stock, which echoes a variety of classical studies. (ii) However, before the conversion, a significant gap appears between Tobin’s marginal q and Tobin’s average q. And in this case the firm’s investment level is relatively low. (iii) Compared with ordinary debt financing, the combined financing mode of CoCo and ordinary debt can effectively alleviate the debt overhang problem and eventually improve firms’ value. Keywords: CoCo; Industrial investment; Tobin’s q; Capital structure (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:ecofin:v:55:y:2021:i:c:s1062940820301935 DOI: 10.1016/j.najef.2020.101305 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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