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Review of Quantitative Finance and Accounting

, Volume 22, Issue 1, pp 29–38 | Cite as

Securitizing Accounts Receivable

  • Darius Palia
  • Ben J. Sopranzetti
Article

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.

securitization accounts receivable factoring asset sales 

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Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Darius Palia
    • 1
  • Ben J. Sopranzetti
    • 1
  1. 1.Rutgers Business SchoolRutgers UniversityPiscatawayUSA

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