A closed-form solution to the risk-taking motivation of subordinated debtholders

Yuval Heller, Sharon Peleg-Lazar () and Alon Raviv

Economics Letters, 2019, vol. 181, issue C, 169-173

Abstract: Black and Cox (1976) claim that the value of junior debt is increasing in asset risk when the firm’s value is low. We show, using closed-form solution, that the junior debt’s value is hump-shaped. This has interesting implications for the market-discipline role of banks’ junior debt.

Keywords: Risk taking; Banks; Asset risk; Leverage; Subordinated debt (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 G38 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: A closed-form solution to the risk-taking motivation of subordinated debtholders (2020)
Working Paper: A closed-form solution to the risk-taking motivation of subordinated debtholders (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:181:y:2019:i:c:p:169-173

DOI: 10.1016/j.econlet.2019.05.003

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