Edited by Sajid Chaudhry and Andrew W Mullineux
Asset securitization markets have grown at a remarkably rapid pace since the 1990s. Figure 3.1 plots the trend of ABS issuance on a global basis over time. The left and right vertical axes capture the volume and number of deals, respectively. The increasing trend indicates that the outstanding of issuance of asset backed securities has grown from 46 billion USD in 1990 to almost 2,400 billion USD by 2006. In a typical securitization, assets such as loans and receivables are pooled together and tranched according to risk profiles, and sold by the originators to a special purpose vehicle (henceforth, SPV). Designed as ‘bankruptcy-remote’ and usually exempt from corporate income taxes (henceforth, CIT), the SPV issues the securities backed by the collateral to investors in the secondary market (Gorton and Souleles, 2007). The securities supported by the receivables are referred to as ‘asset-backed securities’ (henceforth, ABS) (Peaslee and Nirenberg, 2011; Cetorelli and Peristiani, 2012). Even though tax rules are acknowledged by practitioners to be crucial in structuring securitization transactions (Johnsen and Eagan, 2003), the academic research on the topic of corporate income taxes and securitization is scarce. The only exceptions are Han, Park and Pennacchi (2014), and Gong et al. (2014) who investigate the tax distortions in asset securitization. As tax distortion is an importance issue in securitization, we provide an overview of related studies in this chapter.
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