| Summary: | 碩士 === 國立交通大學 === 財務金融研究所 === 101 === After the financial crisis of 2008, contingent capital such as contingent convertible bond (CCBs) receives much attention. CCBs represent an important instrument to alleviate the difficulties of recapitalization as well as reduce the probability of default. However, we argue that contingent convertible bonds financing may have the opposite effect. CCBs always distort risk-taking incentives; that is, firm managers have incentive to take excess risk if the firm issues CCBs as a part of its debt. Moreover, the two characters, conversion ratio and conversion threshold of contingent convertible bonds, play a crucial role in the capital structure and optimal policy decisions. Therefore, finding a mechanism to prevent the risk-taking incentive imposed by contingent convertible bonds will be the major challenge and this study can provide a suggestion in corporate financing.
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