Presenter: Leyla Yusifzada, Aarhus University

Title: How does subordinated debt affect the cost of capital for banks?

Abstract: This paper studies the relationship between banks’ subordinated debt and the cost of capital. Empirical results show that subordinated debt increases the cost of equity, as measured using analysts’ expectations, whereas decreases the cost of equity as measured based on the factor models. The results based on the analysts’ expectations withstand robustness checks, while those using the factor models’ estimates do not. The costs of total debt and total capital decrease with subordinated debt. The results suggest that subordinated debt does not discipline banks’ risk-taking, but offers larger loss absorbency to protect the senior debt holders.

Discussant: Anil Kumar

PhD presentation as part of mandatory 1st or 3rd year presentation. The time is extended to one hour; the presenter has 40 minutes to the presentation, 5-10 minutes for the discussant, and 10-15 minutes for questions.

Organizers: Stefan Hirth and Anders Merrild Posselt