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Asset Securitizations and Credit RiskMary E. BarthStanford University - Graduate School of Business Gaizka OrmazabalUniversity of Navarra, IESE Business School Daniel J. TaylorUniversity of Pennsylvania - The Wharton School August 2, 2011 Accounting Review, Forthcoming Abstract: This study examines the sources of credit risk associated with asset securitizations and whether credit rating agencies and the bond market differ in their assessment of this risk. Measuring credit risk using credit ratings, we find the securitizing firm’s credit risk is positively related to the firm’s retained interest in the securitized assets and unrelated to the portion of the securitized assets not retained by the firm. Measuring credit risk using bond spreads, we find the securitizing firm’s credit risk is positively related to both the firm’s retained interest in the assets and the portion of the securitized assets not retained by the firm. Additionally, our findings indicate the bond market does not distinguish between the retained and non-retained portions of the securitized assets when assessing the credit risk of the securitizing firm. These different assessments of the sources of credit risk associated with asset securitizations provide insight into ongoing controversies surrounding the financial reporting for asset securitizations and the efficacy of credit ratings.
Number of Pages in PDF File: 49 Keywords: asset securitizations, credit ratings, credit risk JEL Classification: G12, G21, G32, M41, L14 Accepted Paper SeriesDate posted: June 21, 2011 ; Last revised: September 12, 2011Suggested CitationContact Information
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