Banks' Asset Securitization and Information Asymmetry

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Abstract
This study investigates the effect of financial asset securitization on banks' information asymmetry. Using bid-ask spreads and analyst forecast dispersion as proxies for information asymmetry, we consistently find that banks that undertake securitization transactions have higher information asymmetry compared to banks with no such transactions. We also find that, within the sample of securitizing banks, the information asymmetry increases with the magnitude of the securitized assets. These results are robust to controlling for various determinants of information asymmetry and for endogeneity. Unlike prior literature that focuses on the benefits of asset securitization, our study examines the costs of this financing technique. Compared to other financing techniques, asset securitizations are achieved through very complex transaction structures. Our findings suggest that an important consequence of asset securitization is the increased information asymmetry arising from such complexity.

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