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On the Usefulness of Mandatory Securitization Disclosures
Flora Niu,
Wilfrid Laurier University
ABSTRACT. This study examines the extent to which the market pricing of earnings from securitizations is affected by mandated disclosures by FAS140. FAS140 fundamentally changes the manner in which firms provide securitization information by mandating a substantial increase in the amount disclosures. The analyses find that the association between returns and securitization earnings is stronger for firms that made quality disclosures under FAS140. In addition, there is further valuation premium or discount if the disclosures are combined with other securitization-specific attributes relevant for performance assessment. Overall, the evidence suggests that disclosures of securitization information assist investors in earnings assessment, thus contribute to a better understanding of firm valuation. The results highlight the importance of mandatory disclosure of complex transactions in the information environment and its role in helping investors understand information from financial statements.
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