Readability of asset securitization reporting and bank holding company’s credit risk

Tsung-Kang Chen, Yijie Tseng and Yun Hao

The Quarterly Review of Economics and Finance, 2025, vol. 103, issue C

Abstract: This study explores whether and how the readability of asset securitization reports of a bank holding company (BHC) affects its credit risk. The findings show that asset securitization reporting readability is negatively associated with BHC credit risk, with information processing costs serving as the primary mediator of this association. This result indicates that asset securitization reporting has communicative value for outside creditors. Moreover, the adoption of Statement of Financial Accounting Standard (SFAS) No. 166/167 (2009) strengthens this association. This effect arises because SFAS No. 166/167 introduces valuation and consolidation amendments, prompting bondholders to become especially cautious when interpreting disclosures with low readability. Additionally, the study suggests that the scale of contractual total retained interests (i.e., on-balance sheet securitized assets) weakens this association, particularly for retained interests from consumer loans. The results remain robust after addressing endogeneity using instrumental variable regression and a difference-in-difference model and adding control variables related to asset securitization, BHC characteristics, and alternative readability measures.

Keywords: Asset securitization reporting readability; Communicative value; Credit risk; Information processing costs; SFAS No. 166/167 (2009) (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:103:y:2025:i:c:s1062976925000729

DOI: 10.1016/j.qref.2025.102031

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