Adverse effect of loan securitization on the stock prices of banks: empirical evidence from europe and america

Abstract

Securitization through its influence on the off balance sheet is likely to become a crucial determinant of the stock prices after the 2007 financial meltdown. Depending on the tranche values and total assets of financial institutions, this paper tries to investigate the reaction of securitization on stock prices. The impact of securitization is analyzed by ordinary least square method in a semi panel structure model in addition to the effects of earnings and book value for the role they play in the market valuation of accounting information before and after the mandatory adoption of International Financial Reporting Standards. To supply more information to the Ohlson (1995) model, an alternative model is used in this paper. The evidence from the estimated model shows that higher securitization causes lower stock prices. Although earnings value does not have any impact on stock prices, book value has negative impact on stock prices. However, the value relevance of earnings and book value becomes significant after the compulsory introduction of IFRS.