The Effect of SFAS 140 on The Risk of Automobile Loan and Credit Card Receivables Asset-Backed Securities

• In Event: Financial Accounting and Reporting 3

Abstract

This study examines the effect of SFAS 140 on the risk, measured by the spreads, of newly issued automobile loan and credit card receivable asset-backed securities (ABS). Regression of the ABS spread on the SFAS 140 disclosure variables (Weighted average life and projected loss disclosures) and control variables shows that the SFAS 140 disclosures provide relevant information to investors in assessing the risk of newly issued automobile loan and credit card receivable ABS. The results also suggest that investors attribute more importance and value relevance to the disclosure of weighted average life compared to the disclosure of projected losses. Collectively, the results suggest that the disclosures required by SFAS 140 are value relevant to investors, provide useful information in evaluating the risk of securitization transactions and result in reduced spreads on newly issued automobile loan and credit card receivable ABS.

Author

• Arthur L Wharton, Towson University