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Customer risk and corporate financial policy: Evidence from receivables securitization
Journal article   Peer reviewed

Customer risk and corporate financial policy: Evidence from receivables securitization

Laura Xiaolei Liu, Mike Qinghao Mao and Greg Nini
Journal of corporate finance (Amsterdam, Netherlands), v 50, pp 453-467
Jun 2018
DOI: https://doi.org/10.1016/j.jcorpfin.2017.09.020

Abstract

Asset backed securitization Capital structure Customer-supplier relationship Special purpose entity
The risk of customers affects corporate financial policy by limiting the ability of firms to securitize customer receivables. We find that firms with riskier receivables, based on the credit risk and diversification of the firms' principal customers, have lower financing capacity and lower leverage in their asset-backed securitizations. Because securitizations are designed to create a very safe claim by separating the risk of the securitized assets from the risk of the originating firms, increases in the risk of the receivables directly inhibit originating firms' ability to securitize assets and indirectly inhibit the originating firms' access to external finance. The study highlights a novel link between the financing of supplier firms and the financial health of their customers and shows how an increase in risk can limit access to external capital. •Nonfinancial firms can obtain financing by securitizing their accounts receivable.•Firms with riskier receivables have securitizations that are smaller and less leveraged.•The risk of the originating firm does not limit the size or leverage of the securitization.•Receivables securitizations separate the risk of the originating firm and the securitized assets.•Increases in risk limit the ability of financial engineering to create safe assets.

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23 citations in Web of Science
20 citations in Scopus

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Domestic collaboration
International collaboration
Web of Science research areas
Business, Finance
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