An exploratory study of the adoption and use of securitisation in New Zealand: an interdisciplinary enquiry

Abstract

Quantitative models predicting the likelihood of securitisation do not consider and are not intended to consider all of the factors that influence the securitisation decision. Yet current explanations for securitisation rely predominantly on empirical evidence from logistic regression models (Demsetz, 2000; Minton, Opler & Stanton, 1997; Pavel & Phillis, 1987) rather than evidence from within firms (O'Connell, Ratnatunga, and Smyrnios, 2000). Consequently, this research identifies the existence of three controversies in the literature concerning differences in perceptions regarding the costs and benefits of securitisation. These differences limit the understanding and use of securitisation as an innovative financing technique, particularly in New Zealand where no prior research has been carried out.

The purpose of the study is to address the research problem: How do New Zealand non-bank financial institutions make the decision to adopt and use securitisation and how does that compare to relevant background theories? The parent or background theory (Phillips & Pugh, 1987) of capital structure is unable to address the gap in the literature. Two distinct methodological approaches are applied. Firstly, a literature review was used to determine what literature could contribute to an understanding of the process, factors and actors involved in the decision to adopt and use securitisation and the component parts of relevant models. Secondly, four case studies were carried out in New Zealand non-bank financial institutions by means of face-to-face interviews, questionnaires and document analysis.

This study finds that although New Zealand non-bank financial institutions make the decision to adopt and use securitisation in a manner that is consistent with some aspects of securitisation and capital structure literature and models, other relevant background theories provide a number of insights into the process, factors and actors involved in the decision-making process. Behavioural Finance and Behavioural Decision Theory offer a framework for understanding problems surrounding information availability, the importance of information sources and the reliance firms place on such information. Strategic motives for securitisation are much stronger than suggested in the extant securitisation literature, as are strategic considerations in the securitisation process. Both Organisational Theory and Strategic Management offer explanations for the way in which firms make their decisions in terms of the methods used and the importance of the external environment and networking in the decision-making process. Innovation Theory in general sheds light on the process involved in the selection of the use of new techniques such as securitisation. Innovation research from New Zealand helps to explain why the characteristics of securitisers in New Zealand differ from what is expected by quantitative securitisation models.

This research highlights the usefulness of a multidisciplinary approach to examining corporate finance decisions. Further consideration of differences in the objectives between modes of decision models, and their potential to complement rather than compete with one another, is required. This is particularly so given the difficulties associated with the diversity of firms in recent field studies of capital structure decisions. While quantitative models are useful at a macro level, descriptive models could be utilised more at the firm-level to provide firm-specific information with which to interpret the predictions of macro models.