Which Factors Play a Role in Coco Issuance? Evidence from European Banks

This paper explores empirically the reasons why some banks issue Contingent Convertible Bonds while others do not. For this purpose we use a binary logistic model and control for the determinants suggested by the literature on optimal capital structure which considers four drivers of capital structure: corporate taxes, costs of financial distress, agency costs and asymmetric information.. Our findings suggest that the banks with bigger size and those with higher Tier 1 capital, higher net loans, higher wholesale funding, lower level of leverage and lower risk weighted assets have a higher tendency to issue CoCos. Our results also suggest that banks in countries with higher annual growth rate of GDP per capita and those listed as G-SIBs are more likely to issue CoCos.