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Securitization and Capital Structure in Nonfinancial Firms: An Empirical Investigation
Author(s) -
LEMMON MICHAEL,
LIU LAURA XIAOLEI,
MAO MIKE QINGHAO,
NINI GREG
Publication year - 2014
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12128
Subject(s) - securitization , business , financial system , debt , capital structure , credit enhancement , off balance sheet , stock (firearms) , bankruptcy , corporate finance , finance , monetary economics , credit risk , economics , credit reference , mechanical engineering , engineering
Contrary to recent accounts of off‐balance‐sheet securitization by financial firms, we show that asset securitization by nonfinancial firms provides a valuable form of financing for shareholders without harming debtholders. Using data from firms’ SEC filings, we find that securitization is attractive to firms in the middle of the credit quality distribution, which are the firms with the most to gain. Upon initiation, firms experience positive abnormal stock returns and zero abnormal bond returns, and largely use the securitization proceeds to repay existing debt. Securitization minimizes financing costs by reducing expected bankruptcy costs and providing access to segmented credit markets.