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Volume 36 - Numéro 3

December 2015

Overcollateralization in Corporate Securitization - 25 December 2015


This paper examines the amount of assets sold to the special purpose vehicle (SPV) in the course of corporate asset-backed securitization and its impact on the originator’s working capital management. Originators generally over-collateralize the vehicle as a way to enhance the rating of the securities issued. We find that credit risk of the originator, cash availability by the originator and macroeconomic conditions significantly affect the level of overcollateralization. Furthermore, true sale treatment of ABS transaction are positively linked to overcollateralization. Finally, we provide insights into the impact of ABS on working capital management. Our results suggest that ABS initiation and the use of overcollateralization both improve working capital ratios of the originating firm, in particular receivables and cash conversion cycles.

Impact of the subprime crisis on the reputation of rating agencies - 25 December 2015


I study the impact of the subprime crisis on the reputation of credit rating agencies by comparing investors’ perceptions of changes in ratings before and during the crisis, on both the European and American stock markets. Using a standard event study methodology, I find significant positive reactions to rating upgrades and significant negative reactions to rating downgrades in normal periods. This effect largely disappears during the crisis, although downgrades still have significant negative reactions on the European stock market. A general concern with event studies during crises is that investors are exposed to an unusual volume of dramatic news that could indirectly affect stock prices. I therefore conduct a Difference-in-Differences study in order to avoid this endogeneity issue. The Difference-in-Differences estimator shows insignificant effects for rating upgrades and downgrades on both stock markets during the crisis. This result supports the view that investors considered that CRAs did not convey reliable information during the crisis.

The Impact of Different Risk Aversions on The Bond-Stock Mix: A Note - 25 December 2015

Sami ATTAOUI, Pierre SIX

This paper reexamines the issue of bond stock allocation by considering, contrary to existing literature, that the risk aversion towards consumption is higher than that towards wealth. We mainly find that a higher risk aversion towards consumption significantly increases the bond-stock ratio, due to, in particular an increase in the bond demand. Also, we find that the proportion of wealth used to satisfy future consumption decreases with the risk aversion towards consumption when the investor is sufficiently rich. Next, we show that when the investor’s current consumption decreases to zero, she saves all her wealth to meet future consumption and leaves nothing for her bequest. Finally, we find that the relative risk aversion exhibits a hump shaped pattern in the coefficient of the risk aversion towards consumption.