Motivations for Securitization: Empirical Evidence from Financial Companies of Korea

Abstract

This study investigates the motivations for securitization of banks and specialized credit financial businesses (SCFBs) such as card companies and installment financing companies of Korea. I hypothesize and provide evidence that banks securitize assets, specifically non-performing loans, to increase regulatory capital ratio, while SCFBs securitize assets, specifically assets other than non-performing loans, to raise funds for operating and investing activities. Furthermore, I find that banks with capital management motivation increase securitization transactions near the end of each quarter, while SCFBs with fund raising motivation do not show such seasonality clearly. This study contributes to the literature by extending the range of study to the securitization of SCFBs and comparing two different industries simultaneously with respect to the motivations. Also, the finding that securitization transactions with capital management motivation increase near the financial reporting date can give implications to regulators and users of financial information.