Securitizing accounts receivable

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12 Scopus citations

Abstract

This paper provides an optimal contracting framework to determine the equilibrium structure of receivables securitization in the presence of moral hazard. An incentive compatible contract is designed where the seller monitors at an efficient level and retains an equity interest in a portion of the receivable to be sold. The seller retains the riskier tranches and sells the safer ones. The equilibrium proportion of the receivable sold will be increasing with the seller's cost of internal funding. Moreover, for sellers with sufficiently high ex-ante probabilities of solvency, the equilibrium proportion of the receivable sold will be decreasing with the seller's probability of solvency.

Original languageEnglish (US)
Pages (from-to)29-38
Number of pages10
JournalReview of Quantitative Finance and Accounting
Volume22
Issue number1
DOIs
StatePublished - Jan 2004

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

Keywords

  • Accounts receivable
  • Asset sales
  • Factoring
  • Securitization

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