Chinese write-down bonds: issuance and bank capital structure

P. Li, Y. Han, S. Lin and T. Qiao

Quantitative Finance, 2020, vol. 20, issue 12, 2055-2065

Abstract: This paper investigates the impact of Chinese write-down bond issuance on issuing bank’s capital structure. We divide the capital structure into asset allocation (financial leverage ratio) and capital allocation (the proportion of Tier 1 capital). We find that the issuance of write-down bonds has a positive effect on the issuing bank’s asset allocation, and the effect is relatively greater for lower leveraged banks. The write-down bond issuance has no effect on capital allocation for the whole sample, but it is inversely related to capital allocation for banks with high Tier 1 capital ratios. For banks that have issued write-down bonds, the issuing amount of write-down bonds has a significant impact on asset allocation, while the impact on capital allocation is not significant. Since write-down bonds are considered to be gone concern capital, and Tier 1 capital is considered to be going concern capital, the issuance of write-down bonds has no significant effect on the proportion of Tier 1 capital for the whole sample.

Date: 2020
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DOI: 10.1080/14697688.2020.1814034

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