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Does Loan Securitization Expose Borrowers to Non-Bank Investor Shocks?—Evidence from Insurers

Author

Listed:
  • Abhishek Bhardwaj
  • Shan Ge
  • Saptarshi Mukherjee

Abstract

CLOs fund 65% of syndicated loans, theoretically insulating borrowers from bank and idiosyncratic investor shocks. However, concentrated capital and sticky relationships expose firms to idiosyncratic shocks to insurers, the largest CLO investors. We find that: 1) insurers experiencing favorable cash flows invest more in CLOs, especially with familiar managers; 2) CLO managers exposed to these cash flows launch more deals; 3) using an instrumental–variable approach, affected firms take out more loans at lower spreads, increase employment, and expand operations; 4) effects are stronger for private than public firms. These findings reveal significant frictions in the loan securitization market.

Suggested Citation

  • Abhishek Bhardwaj & Shan Ge & Saptarshi Mukherjee, 2025. "Does Loan Securitization Expose Borrowers to Non-Bank Investor Shocks?—Evidence from Insurers," NBER Working Papers 33449, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33449
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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