Asset Securitizations and Stock Price Crash Risk: Evidence from Nonfinancial Firms

Yifan JIA; Jeong-Bon KIM; Ying MAO; Ke WANG; Zheng WANG

doi:10.2308/HORIZONS-2022-143

Asset Securitizations and Stock Price Crash Risk: Evidence from Nonfinancial Firms

Yifan JIA
, Jeong-Bon KIM
, Ying MAO
, Ke WANG
, Zheng WANG

Department of Accountancy

Research output: Journal Publications › Journal Article (refereed) › peer-review

1 Citation (Scopus)

Abstract

This study examines the relation between asset-backed securitizations and future stock price crash risk in nonfinancial firms. We argue that the gain-on-sale accounting treatment for off-balance-sheet securitizations facilitates managers’ withholding of bad earnings news, leading to higher crash risk. Using a propensity score-matched sample of U.S. nonfinancial firms, we find that firms engaging in off-balance-sheet securitizations are associated with higher crash risk, especially for firms with gain on sales from securitizations. In 2010, the Financial Accounting Standards Board implemented SFAS 166/167 to tighten the criteria for securitization transactions to receive off-balance-sheet treatment. However, our difference-in-differences analysis shows no significant effect of SFAS 166/167 on reducing securitizing firms’ crash risk. Further analyses reveal that firms engaging in off-balance-sheet securitization before SFAS 166/167 conduct more real activity-based earnings management after SFAS 166/ 167. This evidence suggests that firms could continue to hide bad news through alternative channels as substitutes.

Original language	English
Pages (from-to)	49-70
Number of pages	22
Journal	Accounting Horizons
Volume	40
Issue number	1
Early online date	20 Jan 2025
DOIs	https://doi.org/10.2308/HORIZONS-2022-143
Publication status	Published - Mar 2026

Bibliographical note

We appreciate insightful comments and valuable suggestions from Huai Zhang (editor) and two anonymous reviewers. We are also grateful for comments from and discussions with Christina Mashruwala, Bohan Song, Heather Wier, Jing Zhang, and Liandong Zhang. We thank Ruinan Sun, Yusheng Wang, and Yi Zhang for their excellent research assistance.

Publisher Copyright:
© 2026, American Accounting Association. All rights reserved.

Funding

Yifan Jia acknowledges financial support from the Fundamental Research Funds for the Central Universities, Nankai University [Grant No. 63222061]. Jeong-Bon Kim and Zheng Wang acknowledge financial support from the general research fund (GRF) of the Hong Kong Research Grants Council (Project No. 151411). Ying Mao and Ke Wang have no conflicts of interest related to this research.

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Keywords

asset-backed securitization
crash tisk
gain on sales
off-balance-sheet accounting
SFAS 166/167
crash risk

Access to Document

10.2308/HORIZONS-2022-143

Cite this

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abstract = "This study examines the relation between asset-backed securitizations and future stock price crash risk in nonfinancial firms. We argue that the gain-on-sale accounting treatment for off-balance-sheet securitizations facilitates managers{\textquoteright} withholding of bad earnings news, leading to higher crash risk. Using a propensity score-matched sample of U.S. nonfinancial firms, we find that firms engaging in off-balance-sheet securitizations are associated with higher crash risk, especially for firms with gain on sales from securitizations. In 2010, the Financial Accounting Standards Board implemented SFAS 166/167 to tighten the criteria for securitization transactions to receive off-balance-sheet treatment. However, our difference-in-differences analysis shows no significant effect of SFAS 166/167 on reducing securitizing firms{\textquoteright} crash risk. Further analyses reveal that firms engaging in off-balance-sheet securitization before SFAS 166/167 conduct more real activity-based earnings management after SFAS 166/ 167. This evidence suggests that firms could continue to hide bad news through alternative channels as substitutes.",

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Asset Securitizations and Stock Price Crash Risk: Evidence from Nonfinancial Firms

Abstract

Bibliographical note

Funding

UN SDGs

Keywords

Access to Document

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