Disclosure mandate, trust, and asset securitization

Lantian Liang, Harold H. Zhang, Feng Zhao and Xiaofei Zhao

Journal of Financial Intermediation, 2025, vol. 63, issue C

Abstract: Utilizing a unique and novel setting of disclosure mandate threshold under Regulation AB (Reg AB), we investigate the relationship between disclosure and trust in asset securitization. Post-Reg AB enactment, we observe a significant bunching of originators just below the disclosure threshold. Less trustworthy originators are more likely to adjust their portfolio sizes to remain below this threshold, particularly when loan originators and deal sponsors are unaffiliated, which are cases in which disclosure plays a greater role in reducing information asymmetry. Additionally, these originators are more likely to misrepresent loan quality. Our findings reveal a strong relationship between disclosure and trust—trustworthy originators disclose more and originate higher-quality loans, while less trustworthy originators disclose less and produce lower-quality loans.

Keywords: Disclosure mandate; Regulation AB; Asset securitization; Second-lien underreporting; Transparency; Trust (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:63:y:2025:i:c:s1042957325000130

DOI: 10.1016/j.jfi.2025.101145

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