A closed-form solution to the risk-taking motivation of subordinated debtholders

Yuval Heller, Sharon Peleg-Lazar, Alon Raviv

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

Black and Cox (1976) claim that the value of junior debt is increasing in asset risk when the firm's value is low. We show, using closed-form solution, that the junior debt's value is hump-shaped. This has interesting implications for the market-discipline role of banks’ junior debt.

Original languageEnglish
Pages (from-to)169-173
Number of pages5
JournalEconomics Letters
Volume181
DOIs
StatePublished - Aug 2019

Bibliographical note

Funding Information:
Yuval Heller is grateful to the European Research Council for its financial support (starting grant #677057). Alon Raviv acknowledges the financial support of the Israel Science Foundation (ISF) through grant number 969/15. ☆ Yuval Heller is grateful to the European Research Council for its financial support (starting grant #677057). Alon Raviv acknowledges the financial support of the Israel Science Foundation (ISF) through grant number 969/15.

Publisher Copyright:
© 2019 Elsevier B.V.

Keywords

  • Asset risk
  • Banks
  • Leverage
  • Risk taking
  • Subordinated debt

Fingerprint

Dive into the research topics of 'A closed-form solution to the risk-taking motivation of subordinated debtholders'. Together they form a unique fingerprint.

Cite this