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Securitizing Accounts Receivable

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  • Darius Palia
  • Ben Sopranzetti

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. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • Darius Palia & Ben Sopranzetti, 2004. "Securitizing Accounts Receivable," Review of Quantitative Finance and Accounting, Springer, vol. 22(1), pages 29-38, January.
    • Handle: RePEc:kap:rqfnac:v:22:y:2004:i:1:p:29-38
    DOI: 10.1023/B:REQU.0000006185.39802.83
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    References listed on IDEAS

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    4. Lele Zhou & Maowei Chen & Hyangsook Lee, 2022. "Supply Chain Finance: A Research Review and Prospects Based on a Systematic Literature Analysis from a Financial Ecology Perspective," Sustainability, MDPI, vol. 14(21), pages 1-27, November.

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