Special Purpose Vehicles and Securitization / Gary Gorton, Nicholas Souleles.

Format:

Book

Author/Creator:

Gorton, Gary.

Contributor:

National Bureau of Economic Research.

Souleles, Nicholas.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11190.

NBER working paper series no. w11190

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

Firms can finance themselves on- or off-balance sheet. Off-balance sheet financing involves transferring assets to "special purpose vehicles" (SPVs), following accounting and regulatory rules that circumscribe relations between the sponsoring firm and the SPVs. SPVs are carefully designed to avoid bankruptcy. If the firm's bankruptcy costs are high, off-balance sheet financing can be advantageous, especially for sponsoring firms that are risky. In a repeated SPV game, firms can "commit" to subsidize or "bail out" their SPVs when the SPV would otherwise not honor its debt commitments. Investors in SPVs know that, despite legal and accounting restrictions to the contrary, SPV sponsors can bail out their SPVs if there is the need. We find evidence consistent with these predictions using data on credit card securitizations.

Notes:

Print version record

March 2005.