kaal:claim:2097160-035

Before conversion, contingent convertible bonds incentivize executives to lower risk-taking because their prices are sensitive to the downside risks of SIFIs, including default risk.

Source quote, verbatim

before conversion into equity, contingent convertible bonds can incentivize executives to lower their risk-taking because contingent convertible bond prices are sensitive to downside risks of SIFIs, including the risk of default.226

From

Wulf A. Kaal, Contingent Capital in Executive Compensation (2012), VI.A Contingent Capital as Inside Debt, p. 56
https://ssrn.com/abstract=2097160 · source PDF

Cite as

Wulf A. Kaal, Contingent Capital in Executive Compensation (2012). SSRN: https://ssrn.com/abstract=2097160

Holds when

before conversion into equity
market prices for the instrument are observable

Classification

mechanismsupport: arguedeconomicsrisk-and-incentives

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