Special Purpose Vehicles and Securitization
AbstractFirms can finance themselves on- or off-balance sheet. Off-balance sheet financing involves transferring assets to "special purpose vehicles" (SPVs), following accounting and regulatory rules that circumscribe relations between the sponsoring firm and the SPVs. SPVs are carefully designed to avoid bankruptcy. If the firm's bankruptcy costs are high, off-balance sheet financing can be advantageous, especially for sponsoring firms that are risky. In a repeated SPV game, firms can "commit" to subsidize or "bail out" their SPVs when the SPV would otherwise not honor its debt commitments. Investors in SPVs know that, despite legal and accounting restrictions to the contrary, SPV sponsors can bail out their SPVs if there is the need. We find evidence consistent with these predictions using data on credit card securitizations.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11190.
Date of creation: Mar 2005
Date of revision:
Publication status: published as Gary B. Gorton, Nicholas S. Souleles. "Special Purpose Vehicles and Securitization," in Mark Carey and René M. Stulz, editors, "The Risks of Financial Institutions" University of Chicago Press (2006)
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Other versions of this item:
- G3 - Financial Economics - - Corporate Finance and Governance
- G2 - Financial Economics - - Financial Institutions and Services
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- K2 - Law and Economics - - Regulation and Business Law
This paper has been announced in the following NEP Reports:
- NEP-ACC-2005-03-20 (Accounting & Auditing)
- NEP-ALL-2005-03-20 (All new papers)
- NEP-FIN-2005-03-20 (Finance)
- NEP-LAW-2005-03-20 (Law & Economics)
- NEP-MAC-2005-03-20 (Macroeconomics)
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