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Special Purpose Vehicles and Securitization

  • Gary Gorton
  • Nicholas Souleles

Firms 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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File URL: http://www.nber.org/papers/w11190.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11190.

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Date of creation: Mar 2005
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Publication status: published as Special Purpose Vehicles and Securitization , Gary B. Gorton, Nicholas S. Souleles. in The Risks of Financial Institutions , Carey and Stulz. 2006
Handle: RePEc:nbr:nberwo:11190
Note: AP
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  1. David K. Musto & Nicholas Souleles, 2005. "A portfolio view of consumer credit," Working Papers 05-25, Federal Reserve Bank of Philadelphia.
  2. Gary Gorton & George Pennacchi, 1990. "Banks and Loan Sales: Marketing Non-Marketable Assets," NBER Working Papers 3551, National Bureau of Economic Research, Inc.
  3. David B. Gross & Nicholas S. Souleles, 1999. "An Empirical Analysis of Personal Bankruptcy and Delinquency," Center for Financial Institutions Working Papers 98-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  8. Charles W. Calomiris & Joseph R. Mason, 2003. "Credit card securitization and regulatory arbitrage," Working Papers 03-7, Federal Reserve Bank of Philadelphia.
  9. Lillian F. Mills & Kaye J. Newberry, 2005. "Firms' Off-Balance Sheet and Hybrid Debt Financing: Evidence from Their Book-Tax Reporting Differences," Journal of Accounting Research, Wiley Blackwell, vol. 43(2), pages 251-282, 05.
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