Special Purpose Vehicles and Securitization

Gary Gorton and Nicholas Souleles

No 11190, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Firms can finance themselves on- or off-balance sheet. Off-balance sheet financing involves transferring assets to "special purpose vehicles" (SPVs), following accounting and regulatory rules that circumscribe relations between the sponsoring firm and the SPVs. SPVs are carefully designed to avoid bankruptcy. If the firm's bankruptcy costs are high, off-balance sheet financing can be advantageous, especially for sponsoring firms that are risky. In a repeated SPV game, firms can "commit" to subsidize or "bail out" their SPVs when the SPV would otherwise not honor its debt commitments. Investors in SPVs know that, despite legal and accounting restrictions to the contrary, SPV sponsors can bail out their SPVs if there is the need. We find evidence consistent with these predictions using data on credit card securitizations.

JEL-codes: E5 G2 G3 K2 (search for similar items in EconPapers)
Date: 2005-03
New Economics Papers: this item is included in nep-acc, nep-fin, nep-law and nep-mac
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (59)

Published as Special Purpose Vehicles and Securitization , Gary B. Gorton, Nicholas S. Souleles. in The Risks of Financial Institutions , Carey and Stulz. 2006

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Chapter: Special Purpose Vehicles and Securitization (2007)
Working Paper: Special purpose vehicles and securitization (2005)
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