Ithaca College

School of Business Associate Dean, Rasoul Rezvanian, was recently published in the August 2017 issue of Finance Research Letters. The article, "An examination of Investors’ reaction to the announcement of CoCo bonds Issuance: A global outlook," offers an analysis of contingent convertible bonds.

Abstract: Contingent convertible (CoCo) bonds are hybrid debt instruments that can be converted to common stock at discretion of the issuer if certain preset condition is met. CoCo bonds were initiated by European Financial Institutions (FIs) in response to the 2008 financial crises that reduced capital ratios of FIs at the time that it was not possible for them to raise equity capital. From the issuer point of view, these bonds are low risk/high cost source of capital. From investors’ point of view CoCo bonds are high risk and high return investment. We hypothesis that the announcement of CoCo bonds may have a positive or negative impact on the common stock price of the issuer. To answer this question, we examine the equity return of 41 publicly traded FIs from 16 countries that have issued CoCo bonds during the period from January 2010 to June 2014.  We find that investors response differs from country to country, but generally, FIs’ stock price experience negative abnormal return during the 15 days of post-announcement period. 

Authors: Qunfeng Liao, Oakland University; Seyed Mehdian, University of Michigan-Flint; Rasoul Rezvanian, Ithaca College

The full article is available in: Finance Research Letters, Volume 22, August 2017, Pages 58-65