Asset Securitization and Firm Expansion in Product Markets: Evidence from the Real Estate Development Industry

Abstract

Previous studies found that through facilitating “bankruptcy remoteness,” asset-backed securitization can reduce firms’ borrowing costs and probabilities of facing credit constraints and increase their market values. However, little research has examined the real effect of securitization on firms’ product-market activities. We examine the real estate development industry and find that after securitization, developers become more aggressive in purchasing land and entering new markets. With extra funding from securitization, financially constrained developers become more likely to purchase a parcel independently, whereas developers with capacity constraints conduct more strategic alliances with other developers in purchasing a parcel to utilize more production capacities.