The Effect Of Accounting Disclosures On The Securitizations Market: Sfas 140 And Launch Spreads
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Type of WorkText
DepartmentBusiness and Management
ProgramDoctor of Philosophy
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The Statement of Financial Accounting Standard #140 (SFAS 140) was adopted to replace SFAS 125 for all securitization transactions completed after March 31, 2001. In paragraph 17 of SFAS 140 securitization issuers are given disclosure requirements to provide information about the projected and actual performance of the pool of assets that underlie the securitization transaction. The proposed research will examine the effect of these disclosures on the launch spreads of mortgage, credit card receivables and automobile loan securitization transactions between 1999 and 2003. It is hypothesized that the SFAS 140 disclosures should provide market participants with more information about the projected performance of the underlying asset pool of securitizations and this new information should result in the investors demanding lower launch yields on securitizations after the effective date of SFAS 140. I find evidence to suggest that the launch spreads of mortgage, credit card receivables and automobile loan securitization issues after the adoption of SFAS 140 are significantly lower than the launch spreads of securitization issues before the adoption of SFAS 140, after controlling for a variety of securitization issue characteristics and market factors. In addition, these results hold when the sample is partitioned by the underlying asset type and credit rating. The results suggest that the disclosures applicable to newly issued mortgage, credit card receivables and automobile loan securitizations, as required by paragraph 17 in SFAS 140, are value relevant to securitization investors in the assessment of risk as measured by launch yield spreads. In addition, of the two required disclosures, projected static pool losses and prepayment stress test (weighted-average-life), weighted average life possesses a much more significant association with the variation in launch yield spread than projected static pool losses. This suggests that investors are more attuned to the prospect of prepayments of the underlying asset pool than the projected asset losses. This study makes a significant contribution to the literature in that it is, to my knowledge, the first to examine accounting disclosures in a securitization context. It also examines the relationship of structuring characteristics such as dual role originator/offeror servicer, and type of credit enhancement employed in securitization transactions to launch yield spread.