Real Effects of Securitization

Abstract

We assess the impact of securitization on corporate credit supply and real effects such as investment, sales, and employment. Exploiting the staggered entry of banks in the CLO markets, we document that firms are able to borrow larger amounts after their bank becomes securitization active. The increased use of debt financing increases investment in cash acquisitions as well as firms’ asset, sales, and employment growth. Consistent with a causal effect of securitization, all effects are concentrated in the set of BB/B-rated firms, i.e., firms whose loans are purchased by CLO vehicles. Overall, our results suggest that increased loan supply through securitization can affect real firm outcomes.

Keywords: Securitization, Credit Supply, Real Effects, Collateralized loan obligations (CLOs), Institutional Investors, Syndicated loans

JEL Classification: G21, G23,G31!G32