Contingent Capital Trigger Effects: Evidence from Liability Management Exercises

Boris  Vallée

Article | Review of Corporate Finance Studies | September 2019

Contingent Capital Trigger Effects: Evidence from Liability Management Exercises

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.

Keywords: contingent capital; financial distress; regulatory capital; Financial Institutions; Legal Liability; Management; Banking Industry; Europe;

Format: Print

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Citation:

Vallée, Boris. "Contingent Capital Trigger Effects: Evidence from Liability Management Exercises." Review of Corporate Finance Studies 8, no. 2 (September 2019): 235–259.

Case | HBS Case Collection | February 2020

Seso Global: Building a Blockchain-enabled Property Marketplace in Nigeria

Boris Vallee and Yang (Dolly) Yu

The mutual aspiration of addressing the housing shortage and improving real estate market efficiency led Daniel and Phillip to co-found Seso Global in 2017. Seso Global developed a unique integrated platform to streamline and rationalize the process of acquiring and financing a home in Nigeria. In particular, the Seso team aimed to create a blockchain-enabled ledger of land titles to address a key challenge of Nigerian real estate and mortgages market: ensuring rightful ownership of properties. Their platform combined a land registry management and query portal, a property and mortgage marketplace, and a land service provider marketplace. However, VC investors had been grilling them on their business and revenue model. On the other hand, the impact investors they had talked to were focused on whether their activity would have an effect at the bottom of the pyramid. Pondering on the comments made by the VC, Daniel and Phillip were discussing which part of the platform to prioritize. What should be the focus of their business model? Who should be their main clients? Answers to these questions would be key to win over investors and scale up their operations.

Keywords: fintech; Blockchain; developing markets; entrepreneurial management; Financing and Loans; Online Technology; Business Model; Property; Growth and Development Strategy; Developing Countries and Economies; Real Estate Industry; Africa; Nigeria;

Citation:

Vallee, Boris, and Yang (Dolly) Yu. "Seso Global: Building a Blockchain-enabled Property Marketplace in Nigeria." Harvard Business School Case 220-055, February 2020. View Details

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Marketplace lending relies on large-scale loan screening by investors, a major deviation from the traditional banking paradigm. Theoretically, participation of sophisticated investors in marketplace lending improves screening outcomes but also creates adverse selection. In maximizing loan volume, the platform trades of these two forces by choosing intermediate levels of platform pre-screening and information provision to investors. We use novel investor-level data to test these predictions. We empirically show that more sophisticated investors screen loans differently and systematically outperform less sophisticated investors. However, the outperformance shrinks when the platform reduces information provision to investors, consistent with platforms managing adverse selection.

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Contingent Capital Trigger Effects: Evidence from Liability Management Exercises

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