Announcement Effects of Contingent Convertible Securities: Evidence from the European Economic Area

Abstract

This paper examines the announcement effects of CoCo bonds issued by European banks in the period between January 2009 and March 2022. A total sample of 841 CoCos issued by 238 banks is gathered to perform an event study on the abnormal stock returns and CDS spreads around a CoCo issuance. In our empirical analysis, we focus exclusively on the effects of CoCos issued by STOXX 600 consituents, which reduces our sample to 248 unique issues by 38 banks. Our findings suggest that the issuances of PWD CoCos are associated with significant positive abnormal stock returns and negative CDS spread changes, whereas the announcement effects of CE CoCos are low in significance. In addition, we find anticipation effects prior to a CoCo issuance, with highly significant abnormal returns in the fourteen-days period prior to the announcement date. Our findings are discussed in the context of the ongoing academic debate regarding CoCos’ treatment as going-concern capital.