Wealth effects from asset securitization: (the case of Australia)
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Asset securitization is one of the most important financial innovations recently. With an impressive growth in terms of volume of issuance, from almost zero to five trillion USD, in a period of 15-20 years, it is one of the most rapidly growing markets in the financial world. Yet, little is known about this, literally invisible market. Companies engage in asset securitization for a variety of reasons and numerous advantages and disadvantages of asset securitization can be found throughout the literature. Asset securitization has an impact on a number of stakeholder groups: shareholders, managers, employees, investors, the financial markets and ultimately the overall economy and society. Asset securitization is one of the reasons for the financial crisis that started in mid 2007. Since the recent financial turmoil, it became clear the asset securitization was the primary funding source for companies in the financial industry and it was the primary supplier of credit in developed economies.
Because of its importance and impact, it is very important that we study the reasons, the motivations, the consequences and the effects from this so powerful financial innovation. And it is important to study it from as many different aspects as possible. Many questions surrounding asset securitization are unanswered and it is important to answer them sooner.
This study investigates the wealth effects from asset securitization on the shareholders of the securitizing companies. We study whether the announcement about a pending securitization transaction has any impact on the stock price of the securitizing company. That way we can discover whether asset securitization creates wealth, destroys wealth or has no impact on wealth at all.
Not many studies have been done on this topic so far. The existing seven studies are focused mainly on the US and the EU market and report contradicting results. In this study, for the first time, data from Australia is being used. The Australian securitization market is the second, single most active securitization market in the world, after the US market. We conduct quantitative analysis on a sample of 98 securitization transactions during the period 2000-2006. With this sample, we cover almost 29% of the number of securitization transactions during that period and almost 39% in terms of volume of issuance. To analyze the data we use standard event study methodology, common for this type of studies.
Our analysis reveals that investors in Australia do not perceive asset securitization favorably. Securitizing companies’ stock price decreases in the 10 days around the securitization announcement day, resulting in statistically significant wealth losses for the originating companies’ shareholders. Furthermore, the wealth losses are significant for less frequent securitizers, for securitizers that engage in small volume securitization transactions and for securitizing companies with low asset quality.
With this study we make theoretical and practical contribution. We lend empirical support to the previous theories and we help managers, shareholders and investors shape their forecasts.
Place, publisher, year, edition, pages
2011. , 94 p.
asset securitization, wealth effects, stock price, shareholders, originating company, securitization announcement, event, asset-backed securities
IdentifiersURN: urn:nbn:se:umu:diva-47813OAI: oai:DiVA.org:umu-47813DiVA: diva2:444693
2011-09-23, USBE, S 307, Umeå University, Umeå, 10:00 (English)
UppsokSocial and Behavioural Science, Law
Isaksson, Anders, Universitetslektor
Nylén, Ulrica, Studirerektor