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Contingent convertible bonds and their impact on risk-taking of managers

Listed author(s):
  • Thomas Walther

    (Chair of Finance and Financial Services, Faculty of Business and Economics, Technische Universität Dresden, 01062 Dresden, Germany)

  • Tony Klein

    (Chair of Finance and Financial Services, Faculty of Business and Economics, Technische Universität Dresden, 01062 Dresden, Germany)

This paper discusses how contingent convertible bonds (CCB) influence the risk-taking behaviour of managers. A methodology to measure the impact is presented. The results show that the decision of issuing CCB to finance company assets sets incentives to managers to increase risk, if it is not adjusted to the compensation system. However, if the remuneration of managers is adjusted simultaneously with the issuance, e.g. with internal debt, the drawbacks of the sole compensation with stock options can be equalised. Furthermore, it was found that CCB does have an impact on the risk-taking behaviour, while CCB does not change the incentive to increase the company value at all.

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Article provided by ELSEVIER in its journal Cuadernos de Economía.

Volume (Year): 38 (2015)
Issue (Month): 106 (Abril)
Pages: 54-64

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Handle: RePEc:cud:journl:v:38:y:2015:i:106:p:54-64
Contact details of provider: Postal:
Asociación Cuadernos de Economía Elsevier España, S.L. José Abascal, 45, planta 3ª 28003 Madrid

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