Finance Seminar（2017-01）

Topic: The Role of Contingent Capital Structure in Signaling and Information Disclosure

Speaker: Suxiu Yu, Toulouse School of Economics

Time: Tuesday, 17 January, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract:

This paper advocates two novel advantages of contingent convertible securities in capital structure in (1) signaling, and (2) information disclosure. First, in order to signal his type, the good banker should be punished for poor performance and rewarded otherwise. Since the banker knows better about events occurring in the near future (i.e., the interim states) than final cash ows to be realized in the distant future, the former are better performance indicators, thereby providing contingent securities with additional signaling power. Nevertheless, this advantage needs to be supported by a positive cost of misreporting interim states. Second, even if misreporting is costless, contingent capital structure still has an advantage over non-contingent capital in its ability to mitigate ex-post information asymmetries, since it has more degrees of freedom in setting payoffs to fine-tune the issuer's truth-telling incentives. This paper thus sheds some new light on the design of CoCos and the regulation of contingent capital.

Introduction:

Suxiu Yu is a PhD candidate from Toulouse School of Economics. She went to Toulouse for her graduate study after obtained a B.A. degree from Shanghai University of Finance and Economics. She visited Harvard Business School for one semester in 2015. Her research interests include banking, corporate finance, information economics and contract theory.

Your participation is warmly welcomed!