Credit Market Segmentation, Access to Credit, and Corporate Risk-taking: Evidence from Asset-backed Securitisation

This study examines the effect of the use of Asset-backed Securitisation (ABS) on corporate risk-taking. After careful consideration of self-selection bias and endogeneity, we find that the use of ABS is positively associated with corporate risk-taking. More borrowing through ABS economically and significantly increases corporate risk-taking incentives, through increasing access to credit markets. Employing hand-collected ABS data from 10-K filings in the EDGAR database, we document that firms with larger ABS borrowing capacity and less consumption of credit gain from ABS show more risk-taking incentives afterwards. Further analysis suggests that the ABS systematically affected risk-raking, but unequally across firms. The findings support the theoretical views that low costs of capital, high assets liquidity and good investment opportunities are associated with more corporate risk-taking behaviour. Credit market segmentation and accessibility to the credit market are positively related to risk-taking. The findings highlight the relation between corporate financing and investment decision.