Customer Risk and Corporate Financial Policy: Evidence from Receivables Securitization

40 Pages Posted: 15 Feb 2015 Last revised: 27 Jan 2018

See all articles by Laura Xiaolei Liu

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: January 17, 2018

Abstract

The risk of customers affects corporate financial policy by limiting the ability of firms to securitize customer receivables. We find that firms with riskier receivables, based on the credit risk and diversification of the firms’ principal customers, have lower financing capacity and lower leverage in their asset-backed securitizations. Because securitizations are designed to create a very safe claim by separating the risk of the securitized assets from the risk of the originating firms, increases in the risk of the receivables directly inhibit originating firms’ ability to securitize assets and indirectly inhibit the originating firms’ access to external finance. The study highlights a novel link between the financing of supplier firms and the financial health of their customers and shows how an increase in risk can limit access to external capital.

Keywords: capital structure, asset backed securitization, customer-supplier relationship, special purpose entity

JEL Classification: G32

Suggested Citation

Liu, Laura Xiaolei and Mao, Mike Qinghao and Nini, Gregory, Customer Risk and Corporate Financial Policy: Evidence from Receivables Securitization (January 17, 2018). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2565021

Laura Xiaolei Liu

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 (Contact Author)

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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