The Nature of Securitization Gains—An Analysis from the Financial-Components-Approach

• In Event: Financial Accounting and Reporting 5

Abstract

This study, with the background discussions and the empirical evidences, helps to answer a crucial question: “How is it possible that the sale of an asset originally recorded at one value could generate income and higher asset balances upon merely transferring this asset to another entity?” The answer lies in the up-front recognition of expected future economic benefits as an intangible asset.
Empirical results show that securitization gains are driven by the valuation of different securitization components. Analyses of bank holding companies’ financial structures indicate that intangible assets are much higher for frequent securitizers, when compared with non-securitizers; and the high intangible assets are driven by the recognition of the servicing assets.

Author

• Kang Cheng, Morgan State University