Asset-Level Transparency and the (E)Valuation of Asset-Backed Securities

Does the Financial Reporting Transparency of Securitization Affect Bank Lending Decisions?

“…20 Schmidt & Zhang (2018) document an increase in trading activity and liquidity in the ABS market around the filing dates of Reg AB disclosures (form 10-D). Neilson et al (2018) find that asset-level disclosures after Reg AB II improve investors' valuations of ABS, and improve credit rating agencies' evaluation of ABS. This thesis differs from these studies because it examines financial reporting transparency of BHCs, as opposed to disclosures by securitization utilities that are not included in the BHCs' financial reports, and because it examines lenders' decision-making, as opposed to that of ABS investors and credit rating agencies.…”

“…My thesis is closely related to the growing stream of literature examining the real effects of accounting policies and disclosure on banks' operating decisions (e.g., Bushman & Williams 2012, 2015, Xie 2016, Dou 2017, Ertan, Loumioti & WITTENBERG-MOERMAN 2017, Dou et al 2018, Neilson, Ryan, Wang & Xie 2018, Schmidt & Zhang 2018. Of these studies, Ertan et al's (2017) study examining the effect transparency on loan quality is the most closely related to my thesis.…”

“…Hence, results in one of these settings may not generalize to the other. Schmidt & Zhang (2018) and Neilson et al (2018) examine the effect of Regulation AB (2006) and Regulation AB II (2016) on ABS markets, respectively. These regulations require issuers of SEC-registered structured instruments to provide periodic pool-level (Reg AB) and asset-level (Reg AB II) disclosure about the performance of the underlying assets starting in 2006 and in 2016, respectively.…”

“…This thesis differs from these studies because it examines financial reporting transparency of BHCs, as opposed to disclosures by securitization utilities that are not included in the BHCs' financial reports, and because it examines lenders' decision-making, as opposed to that of ABS investors and credit rating agencies. My thesis examines a dimension of the securitization market and associated disclosures not explored in these studies (Schmidt & Zhang 2018, Neilson et al 2018, and hence it complements them. Schmidt & Zhang (2018) and Neilson et al (2018) focus on disclosures by securitization entities and their effects on ABS investors and credit rating agencies.…”

“…My thesis examines a dimension of the securitization market and associated disclosures not explored in these studies (Schmidt & Zhang 2018, Neilson et al 2018, and hence it complements them. Schmidt & Zhang (2018) and Neilson et al (2018) focus on disclosures by securitization entities and their effects on ABS investors and credit rating agencies. In contrast, I examine BHC-level transparency and its effect on BHCs' lending decisions.…”