Minton, Bernadette (Ohio State U) Sanders, Anthony Strahan, Philip E. (Boston College and Wharton Financial Institutions Center)
Abstract
In this paper, we test two competing explanations for the increasing use of securitization by financial institutions. First, by reducing financial distress costs, securitization lowers the cost of debt finance, particularly for risky and highly levered companies. Second, regulatory distortions in the Basle Capital Accord may create incentives for highly levered banks to securitize assets in order to avoid binding or nearly binding capital requirements. We find that unregulated finance companies and investment banks are much more apt to securitize assets than banks, and that risky and highly levered financial institutions are more likely to engage in securitization than safer ones. At the same time, highly levered banks – banks with low capital ratios – are less likely than better capitalized banks to securitize. Thus, the evidence suggests that securitization is best understood as a contracting innovation aimed at lowering financial distress costs rather than an outgrowth of poorly structured regulations.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number
2004-25.
For technical questions regarding this item, or to correct its listing, contact: ().
Related research
Keywords:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)