Abstract - The use of securitization in industrial firms: An empirical investigation

We present novel empirical evidence on the determinants and consequences use of securitization by publicly-traded, U.S. nonfinancial firms. We find that about 5 percent of nonfinancial firms use securitization; and for firms that use securitization, the average amount of financing provided is about 12 percent of on balance-sheet debt. Compared with firms that do not use securitization, we find that securitizers are larger in size, have a larger share of securitizable assets, are more likely to have access to internal and external financing, and have significantly more credit risk. Upon initiation of a securitization program, firms experience positive abnormal stock returns and no significant change in bond prices. The combined evidence suggests that securitization permits firms to take advantage of segmented credit markets. Relatively risky speculative-grade are able to fund part of their assets by issuing non-recourse, short-term, investment-grade debt, which lowers their cost of capital. Securitization is not reserved for firms without access to alternative sources of financing but rather provides a cheaper alternative for firms with relatively high credit risk.

Gregory Nini
Wharton School, University of Pennsylvania
29.Nov 2011

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