A closed-form solution to the risk-taking motivation of subordinated debtholders
Yuval Heller (),
Sharon Peleg Lazar and
Alon Raviv ()
MPRA Paper from University Library of Munich, Germany
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’ subdebt.
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)
New Economics Papers: this item is included in nep-ban, nep-ore and nep-rmg
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Journal Article: A closed-form solution to the risk-taking motivation of subordinated debtholders (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:93698
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