Because the threat of a change of control leads leaders to take fewer risks in order to avoid triggering conversion, a contingent capital design with increased voting rights allows those leaders to act more in accordance with their moral convictions and conscience.
Source quote, verbatim
It could allow SIFI leaders to increasingly act in accordance with their moral convictions and conscience because the threat of change of control may influence SIFI leaders to take fewer risks to avoid triggering the conversion of CCS and a possible change of con- trol.
From
Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012), VII.C. Increased Voting Rights, p. 47 https://ssrn.com/abstract=1998455 · source PDF
Cite as
Wulf A. Kaal, Initial Reflections on the Possible Application of Contingent Capital in Corporate Governance (2012). SSRN: https://ssrn.com/abstract=1998455
Holds when
where conversion carries a credible threat of change of control
where shareholders respond by allowing management more discretion over risk taking
extendskaal:claim:1908473-025 To balance constituent incentives and prevent abuse, the voting rights increase should be calibrated so that c...
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