September 2019
Article
Review of Corporate Finance Studies

Contingent Capital Trigger Effects: Evidence from Liability Management Exercises

Format:Print

Abstract

This paper investigates the so called liability management exercises by European banks, which bear comparable effects to triggering contingent capital. I first explore the determinants of these exercises. I then study market reactions to these operations as well as banks' economic performance following them. Debtors positively receive these exercises, while stockholders discriminate according to the terms of the operation. Moreover, banks implementing liability management exercises exhibit higher economic performance than the ones that do not. These findings point towards contingent capital offering an effective solution to the dilemma of bank capital regulation.