Asset Securitizations and Credit Risk
49 Pages Posted: 21 Jun 2011 Last revised: 17 Aug 2013
Date Written: August 2, 2011
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: Suggested Citation