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Customer risk and corporate financial policy: Evidence from receivables securitization

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  • Liu, Laura Xiaolei
  • Mao, Mike Qinghao
  • Nini, Greg

Abstract

The risk of customers affects corporate financial policy by limiting the ability of firms to securitize customer receivables. We find that firms with riskier receivables, based on the credit risk and diversification of the firms' principal customers, have lower financing capacity and lower leverage in their asset-backed securitizations. Because securitizations are designed to create a very safe claim by separating the risk of the securitized assets from the risk of the originating firms, increases in the risk of the receivables directly inhibit originating firms' ability to securitize assets and indirectly inhibit the originating firms' access to external finance. The study highlights a novel link between the financing of supplier firms and the financial health of their customers and shows how an increase in risk can limit access to external capital.

Suggested Citation

  • Liu, Laura Xiaolei & Mao, Mike Qinghao & Nini, Greg, 2018. "Customer risk and corporate financial policy: Evidence from receivables securitization," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 453-467.
    • Handle: RePEc:eee:corfin:v:50:y:2018:i:c:p:453-467
    DOI: 10.1016/j.jcorpfin.2017.09.020
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    Cited by:

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    2. Chen, Jie & Su, Xunhua & Tian, Xuan & Xu, Bin, 2022. "Does customer-base structure influence managerial risk-taking incentives?," Journal of Financial Economics, Elsevier, vol. 143(1), pages 462-483.
    3. Tri Tri Nguyen & Manh Cuong Nguyen & Hung Quang Bui & Tuyet Nhung Vu, 2021. "The cash-holding link within the supply chain," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1309-1344, November.
    4. Marques, Manuel O. & Pinto, João M., 2020. "A comparative analysis of ex ante credit spreads: Structured finance versus straight debt finance," Journal of Corporate Finance, Elsevier, vol. 62(C).
    5. Manh Cuong Nguyen & Viet Anh Dang & Tri Tri Nguyen, 2023. "The transfer of risk taking along the supply chain," Review of Quantitative Finance and Accounting, Springer, vol. 61(4), pages 1341-1378, November.
    6. Wang, Li & Wu, Yiqi & Chen, Yaxin & Dai, Yunhao, 2023. "Distance produces the fear of loss: Customer geographic proximity and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 87(C).

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