Securitization and Capital Structure in Nonfinancial Firms: An Empirical Investigation

Journal of Finance, 69(4) 1787-1825, August 2014

89 Pages Posted: 25 Nov 2011 Last revised: 2 Feb 2018

See all articles by Michael L. Lemmon

Michael L. Lemmon

University of Utah - Department of Finance

Laura Xiaolei Liu

Guanghua School of Management, Peking University

Mike Qinghao Mao

Deakin University - Faculty of Business and Law

Greg Nini

Drexel University - Department of Finance

Date Written: September 17, 2013

Abstract

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 to shareholders without harming firms’ 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, zero abnormal bond returns, and largely use the securitization proceeds to repay existing debt. Securitization helps minimize financing costs by reducing expected bankruptcy costs and providing access to segmented credit markets.

Keywords: asset-backed securitization, ABS, capital structure, off-balance sheet, SPE, VIE

JEL Classification: G32

Suggested Citation

Lemmon, Michael L. and Liu, Laura Xiaolei and Mao, Mike Qinghao and Nini, Gregory, Securitization and Capital Structure in Nonfinancial Firms: An Empirical Investigation (September 17, 2013). Journal of Finance, 69(4) 1787-1825, August 2014. Available at SSRN: https://ssrn.com/abstract=1964647 or http://dx.doi.org/10.2139/ssrn.1964647

Michael L. Lemmon

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)

Laura Xiaolei Liu (Contact Author)

Guanghua School of Management, Peking University ( email )

Peking University
Beijing, Beijing 100871
China

HOME PAGE: http://www.pku.edu.lauraliu.cn/en-home.html

Mike Qinghao Mao

Deakin University - Faculty of Business and Law ( email )

70 Elgar Road
Burwood, Victoria 3125
Australia
+61392446574 (Phone)

Gregory Nini

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States

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