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Securitization and credit quality in the European market

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  • Alper Kara
  • David Marques‐Ibanez
  • Steven Ongena

Abstract

We assess the effect of securitization activity on relative credit quality employing a uniquely detailed dataset from the euro‐denominated syndicated loan market. We find that at issuance, based on observable characteristics, banks do not seem to select and securitize loans of lower credit quality. Following securitization, the credit quality of borrowers whose loans are securitized deteriorates more than those in the control group. We find that poorer performance by borrowers of securitized loans seems to be connected to banks’ reduced monitoring incentives. Our results are supported by two additional methodologies and robust to controlling for predetermined borrower–lender matching.

Suggested Citation

  • Alper Kara & David Marques‐Ibanez & Steven Ongena, 2019. "Securitization and credit quality in the European market," European Financial Management, European Financial Management Association, vol. 25(2), pages 407-434, March.
  • Handle: RePEc:bla:eufman:v:25:y:2019:i:2:p:407-434
    DOI: 10.1111/eufm.12168
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    File URL: https://doi.org/10.1111/eufm.12168
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    3. Solomon Y. Deku & Alper Kara & Artur Semeyutin, 2021. "The predictive strength of MBS yield spreads during asset bubbles," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 111-142, January.
    4. Arif, Ahmed, 2020. "Effects of securitization and covered bonds on bank stability," Research in International Business and Finance, Elsevier, vol. 53(C).

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