Can asset-backed securitisation reduce corporate leverage? Evidence from China

Although Chinese regulatory authorities view corporate asset-backed securitisation as a powerful tool for deleveraging, its effectiveness remains unexamined. Employing a look-through approach to data from nonfinancial corporate asset-backed securitisation transactions in China, we identify the actual originators and examine the impact of corporate asset-backed securitisation on their leverage ratios. Regrettably, we find that corporate asset-backed securitisation significantly increases the leverage ratio. This result holds true across both state-owned and non-state-owned enterprises, as well as large-scale and small-scale enterprises. Finally, this study reveals that the effect of corporate asset-backed securitisation on the leverage ratio is partially mediated by internal financing capacity.