Asymmetric information and the securitization of SME loans
53 Pages Posted: 12 Feb 2021 Last revised: 27 Jul 2023
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Asymmetric information and the securitization of SME loans
Asymmetric Information and the Securitization of SME Loans
Date Written: February 11, 2021
Abstract
Using data from the Italian credit register encompassing all loans granted to firms, we examine the correlations between risk-transfer and default probabilities to gauge the severity of informational asymmetries in the securitization market for loans to SMEs. First, the analysis confirms the presence of information frictions. Second, the unconditional quality of securitized loans remains significantly higher than that of non-securitized ones, consistent with the view that market participants anticipate the presence of information frictions and carefully select which loans to securitize to offset the detrimental effects of asymmetric information. Third, by analysing firms with multiple bank relationships, we provide insights into the relative importance of adverse selection and moral hazard as forms of informational friction. While adverse selection is widespread, moral hazard is primarily observed in weaker relationships, implying that loans in these cases exhibit limited commitment from banks to engage in costly monitoring.
Keywords: securitization, SME loans, moral hazard, adverse selection
JEL Classification: D82, G21
Suggested Citation: Suggested Citation