Market valuation of banks' loan securitizations disclosures
Authors: Wei-Tzu Chen
Journal: Chia Da Management Review. Jun. 2011, 31(1): 59-92.
Keywords: ecuritized loans;Off-balance sheet assets;Sale accounting;Secured borrowings
Abstract:
This study aims at investigating how the capital market prices
securitized loans, as they are accounted for as off-balance sheet
assets under Statement of Financial Accounting Standards No. 140.
From the regulatory reports of bank holding companies, this study
provides evidence in three aspects: (1) investors perceive banks'
securitized loans with similar value to other on-balance sheet
assets, (2) riskiness of contractual interests residing with the
securitizing banks partially affects market pricing on transferred
loans, and (3) characteristics of loans implying differential
levels of external verification of credit risk have a great impact
on investors' perception of loan securitizations as secured
borrowings. Findings of this study address the usefulness of
off-balance sheet activities disclosures. Moreover, how to properly
account for transactions, such as securitizations, to reflect
their economic reality is important as standard setters adopt the
principle-based concept in revising accounting standards for
providing transparent and relevant information to investors.