“Asset-backed Securitization in industrial firms—an empirical investigation” by Laura Liu
Hong Kong University of Science and Technology
We investigate the determinants and the consequences of industrial firms using asset-backed securitizations. We find that ABS users are larger, more highly levered, and have lower R&D intensity compared to other firms in the industry. Upon initiating ABS usage, firms experience an increase in asst return volatility, a decrease in bond rating, and increase in their total leverage (including the leverage associated with ABS). Firms with higher marginal tax rates borrow more using ABS. ABS users also experience an increase in their bond and loan spreads post ABS initiation, while the ABS spreads are much lower than bond spreads. Overall, our results are consistent with Leland's (2007) model where firms use ABS financing to take advantage of financial synergies. Finally, we find that firms use less ABS when the securitization has to be consolidated and that ABS usage has declined following changes in the accounting treatment of these transactions, suggesting that firms also care about accounting reporting in determining their ABS usage.