Asset-Level Transparency and the (E)valuation of Asset-Backed Securities

As of November 2016, SEC Regulation (“Reg”) AB II requires issuers of certain types of asset-backed securities (“ABS”) to disclose the credit-risk attributes of each asset in the underlying pool, a substantial expansion of prior disclosure requirements. We examine how ABS issuers’ asset-level disclosures under Reg AB II affect the (e)valuation of ABS by investors and credit rating agencies. Using difference-in-differences models that compare affected and unaffected types of ABS, we find that these disclosures improve the ability of initial ABS yields and credit ratings to predict the performance of the underlying assets. These results are concentrated in deals with above-median risk layering in the underlying assets and complexity in the tranching of credit risk. We further find that asset-level disclosures are associated with lower yields. Lastly, we provide evidence that most prospective ABS investors download asset-level information during the price formation period prior to ABS issuance.

This is the peer reviewed version of the following article: [Asset‐Level Transparency and the (E)valuation of Asset‐Backed Securities. Journal of Accounting Research (2021)], which has been published in final form at https://doi.org/10.1111/1475-679x.12389. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions: https://authorservices.wiley.com/author-resources/Journal-Authors/licensing/self-archiving.html#3.

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Work Title Asset-Level Transparency and the (E)valuation of Asset-Backed Securities
Access
Open Access
Creators
  1. Jed J. Neilson
  2. Stephen G. Ryan
  3. K. Philip Wang
  4. Biqin Xie
Keyword
  1. asset-backed securities
  2. asset-level disclosures
  3. Reg AB II
  4. transparency
  5. risk layering
  6. credit rating quality
License In Copyright (Rights Reserved)
Work Type Article
Publisher
  1. Wiley
Publication Date July 16, 2021
Publisher Identifier (DOI)
  1. 10.1111/1475-679x.12389
Source
  1. Journal of Accounting Research
Deposited May 23, 2022

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Version 1
published

  • Created
  • Added SSRN-id3247342-1.pdf
  • Added Creator JED J. NEILSON
  • Added Creator STEPHEN G. RYAN
  • Added Creator K. PHILIP WANG
  • Added Creator BIQIN XIE
  • Published
  • Updated Work Title, Keyword, Description Show Changes
    Work Title
    • Asset-Level Transparency and the (E)valuation of Asset-Backed Securities
    • ! Asset-Level Transparency and the (E)valuation of Asset-Backed Securities
    Keyword
    • asset-backed securities, asset-level disclosures, Reg AB II, transparency, risk layering, credit rating quality
    Description
    • <p>As of November 2016, SEC Regulation (“Reg”) AB II requires issuers of certain types of asset-backed securities (“ABS”) to disclose the credit-risk attributes of each asset in the underlying pool, a substantial expansion of prior disclosure requirements. We examine how ABS issuers’ asset-level disclosures under Reg AB II affect the (e)valuation of ABS by investors and credit rating agencies. Using difference-in-differences models that compare affected and unaffected types of ABS, we find that these disclosures improve the ability of initial ABS yields and credit ratings to predict the performance of the underlying assets. These results are concentrated in deals with above-median risk layering in the underlying assets and complexity in the tranching of credit risk. We further find that asset-level disclosures are associated with lower yields. Lastly, we provide evidence that most prospective ABS investors download asset-level information during the price formation period prior to ABS issuance.</p>
    • As of November 2016, SEC Regulation (“Reg”) AB II requires issuers of certain types of asset-backed securities (“ABS”) to disclose the credit-risk attributes of each asset in the underlying pool, a substantial expansion of prior disclosure requirements. We examine how ABS issuers’ asset-level disclosures under Reg AB II affect the (e)valuation of ABS by investors and credit rating agencies. Using difference-in-differences models that compare affected and unaffected types of ABS, we find that these disclosures improve the ability of initial ABS yields and credit ratings to predict the performance of the underlying assets. These results are concentrated in deals with above-median risk layering in the underlying assets and complexity in the tranching of credit risk. We further find that asset-level disclosures are associated with lower yields. Lastly, we provide evidence that most prospective ABS investors download asset-level information during the price formation period prior to ABS issuance.
  • Renamed Creator Jed J. Neilson Show Changes
    • JED J. NEILSON
    • Jed J. Neilson
  • Renamed Creator Stephen G. Ryan Show Changes
    • STEPHEN G. RYAN
    • Stephen G. Ryan
  • Renamed Creator K. Philip Wang Show Changes
    • K. PHILIP WANG
    • K. Philip Wang
  • Renamed Creator Biqin Xie Show Changes
    • BIQIN XIE
    • Biqin Xie
  • Updated Work Title Show Changes
    Work Title
    • ! Asset-Level Transparency and the (E)valuation of Asset-Backed Securities
    • Asset-Level Transparency and the (E)valuation of Asset-Backed Securities
  • Updated