Receivables Securitization and the Non-Financial Firm

Since the start of the financial crisis, various forms of securitization have been criticized for causing the problems experienced. The amount of Asset Backed Commercial Paper outstanding fell drastically in the middle of 2007 drawing our attention to this market. Our study focuses on the use of receivables securitization by non-financial firms, and we investigate who uses these programs, why they do so, and whether it adds any economic value. We carefully collect data from the 10-K filings of 242 users of securitization across the fiscal years 2006 and 2007, and combining it with accounting information from COMPUSTAT form powerful comparisons between users and non-users of receivables securitization We find that securitization appears to be most commonly utilized by those who are larger in size, have enough receivables to support a program, and who are restricted from accessing traditional credit markets due to high credit risk.. We find that the use of receivables securitization does add economic value through its ability, as a form of secured financing, to help firms overcome the agency problems caused by ‘debt overhang’. It indicates that although financial firms were hurt by their use of ABCP programs, securitization can be useful to particular types of firms.