Contingent convertibles with stock price triggers: The case of perpetuities

George Pennacchi, Alexei Tchistyi

Research output: Contribution to journalArticlepeer-review


Initial proposals for contingent convertibles (CoCos) envisioned that these bonds would convert to equity when the issuing bank's stock price declined to a prespecified trigger. Subsequent research has claimed that doing so causes the stock price to have multiple equilibria or no equilibrium.We showthat when CoCos are perpetuities, which characterizes most actual CoCos, a unique stock price equilibrium exists, except under unrealistic conditions. Unique equilibria occur when conversion favors or disfavors CoCo investors, when CoCos convert to equity or are written down, and when CoCos are callable. We also analyze a bank's risk choices before and after conversion.

Original languageEnglish (US)
Pages (from-to)2302-2340
Number of pages39
JournalReview of Financial Studies
Issue number6
StatePublished - Jun 1 2019

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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