# kaal:claim:2097160-035

**Claim.** 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.

**Type.** mechanism  **Support.** argued

**Holds when.**

- before conversion into equity
- market prices for the instrument are observable

**Source quote.**

> 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, page 56

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

**Verify.** sha256 of source PDF `1e1f8aa246bce19f4658dbceb455c7c2a272aa5d63a9e9bdaa46a3a5a87680fc` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20-%202012%20-%20Contingent%20Capital%20in%20Executive%20Compensation.pdf

**Topics.** economics, risk-and-incentives

**Keywords.** price-sensitivity, downside-risk, inside-debt, risk-taking

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