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Securitization and credit quality in the European market
Author(s) -
Kara Alper,
MarquesIbanez David,
Ongena Steven
Publication year - 2019
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12168
Subject(s) - securitization , business , incentive , financial system , loan , quality (philosophy) , monetary economics , syndicated loan , credit rating , matching (statistics) , finance , economics , philosophy , statistics , mathematics , epistemology , microeconomics
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.