Asset Securitizations and Credit Risk

49 Pages Posted: 21 Jun 2011 Last revised: 17 Aug 2013

Mary E. Barth

Stanford University - Graduate School of Business

Gaizka Ormazabal

University of Navarra, IESE Business School

Daniel J. Taylor

University of Pennsylvania - The Wharton School

Date Written: August 2, 2011

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.

Keywords: asset securitizations, credit ratings, credit risk

JEL Classification: G12, G21, G32, M41, L14

Suggested Citation

Barth, Mary E. and Ormazabal, Gaizka and Taylor, Daniel J., Asset Securitizations and Credit Risk (August 2, 2011). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1865376

Mary E. Barth (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Gaizka Ormazabal

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Daniel Taylor

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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