Can asset‐backed securitisation reduce corporate leverage? Evidence from China

Abstract

Although Chinese regulatory authorities view corporate asset‐backed securitisation as a powerful tool for deleveraging, its effectiveness remains unexamined. Employing a look‐through approach to data from nonfinancial corporate asset‐backed securitisation transactions in China, we identify the actual originators and examine the impact of corporate asset‐backed securitisation on their leverage ratios. Regrettably, we find that corporate asset‐backed securitisation significantly increases the leverage ratio. This result holds true across both state‐owned and non‐state‐owned enterprises, as well as large‐scale and small‐scale enterprises. Finally, this study reveals that the effect of corporate asset‐backed securitisation on the leverage ratio is partially mediated by internal financing capacity.