Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/294905 
Authors: 
Year of Publication: 
2019
Citation: 
[Journal:] Junior Management Science (JUMS) [ISSN:] 2942-1861 [Volume:] 4 [Issue:] 2 [Year:] 2019 [Pages:] 228-240
Publisher: 
Junior Management Science e. V., Planegg
Abstract: 
This thesis provides a differentiated answer to the question whether subordinated debt disciplines bank's risk-taking behavior. I investigate the conditions and applicability of market discipline through subordinated debt instruments by critically reviewing the state of research. Relating to the regulatory context, I discuss proposals and various empirical studies and find that subordinated debt is an adequate measure to discipline banks under certain conditions. My own empirical analysis contributes to evidence provided by prior studies and updates them for the European case. I conclude that subordinated debt investors perceive differences in risk between banks and across time and are sensitive to credit ratings and accounting variables at generally higher spread levels compared to senior bonds. Results include that spread is positively sensitive (increases with respect to one standard error) to equity to capital (225 BPS), provision for loan losses (200 to 225 BPS), non-performing loans to equity (400 to 715 BPS) and interest coverage ratio (60 BPS). Spread is negatively sensitive (decreases with respect to one standard error) to ROA (120 BPS) and loan loss reserves (360 to 620 BPS).
Subjects: 
debt market discipline
bond spreads
subordinated debt
bail-in
bail-out
BRRD
Basel II
Basel III
market monitoring
market influence
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article
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