Firm performance, ownership, and securitization: evidence from non-financial firms in China

We examine the unique setting of publicly traded non-financial Chinese firms to investigate the joint effects of corporate performance, ownership type, and trade credit characteristics on the decision to issue asset-backed securitization (ABS). We demonstrate that firm performance has a generally negative effect on the probability of securitization issuance, and ownership type plays a crucial and decisive role in a firm’s decision to initiate ABS. While firm performance negatively affects the decision to securitize assets for government-connected enterprises, non-connected enterprises exhibit a significantly positive relationship between enhanced firm performance and securitization initiation. This distinction arises from the varying financing constraints faced by government-connected enterprises and non-connected enterprises, influenced by political connections, which, in turn, create diverse incentives for engaging in securitization programs. Furthermore, we find that corporate trade credit characteristics also significantly affect the decision to securitize assets, with accounts receivable (A/R) exerting a positive effect and accounts payable (A/P) contributing negatively.