| The lowering of lending standards due to moral hazard in asset securitization was one of the triggers of the subprime mortgage crisis in 2008.Since then,the U.S.securitization market has shrunk rapidly,and the Chinese government has suspended the asset securitization pilot.With the gradual resolution of the subprime mortgage crisis in the United States,especially the effectiveness of the first phase of the pilot in China,the Chinese government restarted the pilot in 2011.However,as the issuance scale becomes larger,the number of defaults on the underlying assets of credit asset securitization is still increasing.Due to the structured packaging,it is difficult for investors to observe the quality of the underlying assets,coupled with the moral hazard behaviors of the securitization transaction suppliers,such as slack asset management,poor due diligence,and misreporting information,which further condone the occurrence of defaults.China credit asset securitization has entered a stage of rapid development,but there is still room for improvement in the supervision of transaction subjects.Under the theory of information asymmetry and incomplete contracts,reputation is an informal mechanism to ensure contract execution.Compared with laws that rely on the coercive force of the state,the threshold for governance of illegal economic behavior is lower,and as an implicit contract method,which can overcome many deficiencies of explicit contracts such as high supervision costs.In addition,according to the conclusions of the KMRW reputation model and the agent market-reputation model,reputation is a good strategy to control moral hazard.But how does reputation control moral hazard? This paper reviews the existing research on reputation controlling moral hazard of credit asset securitization.In terms of reputation model,it focuses on the classical theoretical model of reputation governing moral hazard and the theoretical model of reputation governing moral hazard of credit asset securitization,and summarizes the main points that reputation mechanism plays a role,that is,repeated game is the premise,effective transmission of information is the process condition,and punishment is the result.In terms of reviewing reputation empirical research,it focuses on reviewing reputation measurement indicators,influencing factors of reputation,economic effects of reputation and research methods,and integrates the analytical framework of reputation empirical research.After that,the existing literature is reviewed,mainly expounding the shortcomings of the current research and the possible innovations of this paper.The current research on the reputation mechanism of credit asset securitization mainly focuses on the reputation mechanism of a single transaction subject.Research on reputation mechanism to govern moral hazard arising from multiple principal-agent relationship is lacking,where originators entrust issuers with securitization,issuers entrust originators with loan management,issuers entrust third-party service agencies for professional services.In addition,there is still a lack of empirical research on reputation controlling the moral hazard of credit asset-backed securities.Firstly,there is a lack of empirical tests on the interaction among credit asset securitization transaction subjects.Secondly,the selection of financial institutions’ reputation and moral hazard measurement indicators are still controversial.Thirdly,the empirical research on reputation is prone to endogeneity.Many measurement models are set with endogeneity,so the conclusions lack robustness.Finally,the existing research mostly focuses on the developed US market of credit asset securitization as a sample.There is a lack of empirical data from China and emerging market countries,so it is impossible to infer the situation of these markets.This paper aims to remedy the above deficiencies.Combined with the research inspiration of relevant literature and the development characteristics of China’s credit-backed securities,the research questions that may have theoretical and practical significance are put forward as follows:(1)Combining credit asset securitization transaction entities into a community,is the causal relationship between community reputation and credit asset securitization moral hazard significant? And what is the direction of effect?(2)How does reputation work within the community? That is,are the interaction and “collective punishment” effect among reputation community members significant? And what is the direction of effect? Moreover,is there a “leader” within the community?(3)How does reputation of community “leader” control moral hazard of credit asset securitization?Based on the above research questions,this paper is divided into three dimensions which are the community,members within the community,and the “leader” to study reputation mechanism governing moral hazard of credit asset securitization,building theoretical models and conducting empirical tests in turn:In terms of model construction and theoretical analysis of reputation controlling moral hazard of credit asset securitization,due to the complex transaction structure of credit asset-backed securities,it is difficult for a single model to fully demonstrate reputation mechanism controlling its moral hazard,this paper chooses to use multi-model analysis on the basis of studying the current situation and regulatory policies of China credit asset securitization transactions,and establishes a theoretical model of reputation controlling moral hazard of credit asset securitization according to its transaction structure: At first,a reputation community model is established to focus on analyzing the community strategy,and find out the conditions of reputation construction in community.Then,sequential game is used to analyze the strategies of community members,and solve the equilibrium path,and find that the leader of community model is originator.Finally the originator reputation model is built,according to reputation dynamics,inter-period discount factors,and transaction subjects’ payoff gain from misreporting,and a method is proposed to identify the originator’s type.Moreover,in the aspect of theoretical research,reputation community model is suitable for other financial product fields,and sequential game model with dominant strategists can be used for game analysis where cooperative alliance has a leader,so both have strong generality.Relatively speaking,originator reputation model is tailor-made for credit asset-backed securities.Considering that risk retention regulation is the main measure for Chinese regulators to control moral hazard,it is added to make the model as close to reality as possible,which is a new form of reputation theory applied to analyzing moral hazard in the financial field.In terms of empirical test about reputation controlling moral hazard of credit asset securitization,according to the above theoretical model and related literature,sixteen hypotheses are put forward,and ordinary least squares(OLS)is used for benchmark regression analysis.According to the characteristics of each model,the endogenous of regression models is eliminated by adding fixed effects and propensity score matching,and finally all models pass robustness test.Concretely speaking,firstly the effect of community reputation on moral hazard of credit asset securitization is verified by benchmark regression analysis.Secondly,the mechanism of action is analyzed,and the interaction and “collective punishment” of credit asset securitization among reputation community members are studied.The interaction between issuer reputation and originator reputation,the interaction between lead underwriter reputation and issuer reputation,the “collective punishment” of originator reputation,the “collective punishment” of issuer reputation and the “collective punishment”of lead underwriter reputation are analyzed,and the influence of leader reputation on moral hazard of credit asset securitization is tested.Furthermore,in terms of empirical research,firstly,the default rate most commonly used in the literature is selected as the moral hazard measurement indicator of credit asset securitization for testing,which proves its effectiveness and credibility,and the non-performing loan ratio mentioned in some literature is selected as the moral hazard measurement indicator of credit asset securitization,which also proves its effectiveness and credibility.However,compared with default rate,non-performing loan ratio has a time lag,and empirical model of this paper has keenly captured the above characteristics.Secondly,punishment by regulators for fraud is selected as a measure of the reputation deterioration of banks and other financial institutions for testing,which proves its effectiveness and credibility.Thirdly,this study selects all public data from the birth of China credit asset securitization to December 31,2020 as a sample to provide empirical support for analyzing the current situation of China credit asset securitization market.Finally,in order to eliminate endogeneity of the model,this paper improves the model by adding fixed effects,and uses the propensity score matching method to deal with sample,and obtains a robust regression result.To sum up,according to transaction structure of China credit asset-backed securities,this paper studies moral hazard governance problems arising from its multiple principal-agent relationships.Through the research on reputation controlling moral hazard of credit asset securitization,this paper draws the following three conclusions:Firstly the research on the causal relationship between reputation community reputation and moral hazard level of credit asset securitization concludes that on one hand,from the inference of theoretical model of community reputation controlling moral hazard of credit asset securitization,reputation value of the reputation community is the opportunity cost of benefiting from moral hazard behavior.The higher community reputation is,the lower level of moral hazard is.If the benefit of moral hazard behavior is greater than reputation value,reputation community has the motivation to produce moral hazard behavior.If utility increment brought by reputation is greater than utility increment brought by moral hazard behavior,reputation community has the motivation to build reputation.Moreover,the sooner moral hazard behavior is discovered,and the easier it will be for the community to build its reputation.On the other hand,from the empirical test results that community reputation controls moral hazard of credit asset securitization,community reputation deterioration leads to an increase in default rate of credit asset securitization.Therefore,community reputation has a significant negative effect on moral hazard of credit asset securitization,that is,the higher community reputation is,and the lower moral hazard level of credit asset securitization is.Secondly the research on sequential game among community members reputation concludes that on one hand,from the inference of sequential game model of community members reputation,reputation deterioration of one member in the reputation community has a transmission effect on moral hazard level of other members,which is divided into reputation among community members has an interactive effect and “collective punishment” on moral hazard of credit asset securitization when reputation is deteriorated.Furthermore,originator is the “dominant decision maker” and actual “steer man” in transaction structure of credit asset-backed securities.The key of preventing moral hazard of credit asset-backed securities is to control moral hazard of the originator.On the other hand,from empirical test results of community members’ reputation controlling moral hazard of credit asset securitization,firstly from the perspective of interaction between reputation community members,the interaction has no significant effect on moral hazard of credit asset securitization in the year when the reputation deterioration occurred.The interaction has a significant effect after one year when the reputation deterioration occurred.It can be seen that the effect of the reputation interaction among community members on moral hazard of credit asset securitization has a time lag.Secondly from the perspective of “collective punishment” of reputation,originator correlative reputation have a significant impact on moral hazard level of credit asset securitization,while issuer correlative reputation and lead underwriter correlative reputation have no significant impact on moral hazard level of credit asset securitization,which also proves the leading role of originator in the reputation community model and supports conclusion of sequential game model with leader.Thirdly the research on reputation community leader controlling moral hazard of credit asset securitization concludes that on one hand,from the inference of model that community leader reputation controls moral hazard of credit asset securitization,reputation can improve allocation efficiency,and market price that only relies on reputation plays a role is more informative than market which relies on reputation and signals to overcome information asymmetry.When constructing the originator reputation model,separation equilibrium can be achieved according to reputation dynamics,inter-period discount factors,and payoff gain from misreporting,so as to distinguish originator’s type and identify originator’s moral hazard behaviors.Opportunistic originators have moral hazard behaviors,as well as dynamic level of reputation is signaled by risk retention ratio,and it is deduced that risk retention ratio is negatively correlated with reputation.On the other hand,from the empirical test results of community leader reputation controlling moral hazard of credit asset securitization,leader reputation deterioration will increase default rate of credit asset securitization,that is,leader reputation has a significant negative impact on moral hazard of credit asset securitization.The effect is not significant in early stage of transaction,and the larger size of originator’s assets is,the more significant effect is.This paper expands the research on theoretical model and empirical test of reputation controlling moral hazard,which helps to deepen understanding of reputation mechanism controlling moral hazard of credit asset securitization.Its research contributions are mainly reflected in literature research,reputation theoretical research and reputation empirical research:In the literature research,the first point is to summarize theoretical model of reputation controlling moral hazard of credit asset securitization,and the main points of its action mechanism are repeated games,effective transmission of information,and credible threats(punishment).The second point is to sort out antecedent variables,measurement indicators,control variables that affect their role,and outcome variables of reputation effect,analytical framework of empirical research on reputation is constructed.The third point is to analyze deficiencies of existing research on complex transaction structure of credit asset-backed securities,and to review the applicability of various reputation measurement indicators and moral hazard measurement indicators of financial institutions in China’s financial market in detail.In terms of reputation theory research,firstly a reputation community model is built to analyze moral hazard control problems caused by multiple principal-agent relationship;secondly constraints is added to analyze moral hazard based on the perspective of stakeholder reputation measurement;thirdly sequential game is used to find out leader in complex transactions,which enriches research on sequential game model with dominant strategist;fourthly it strengthens the research on mechanism of action within reputation community,and explains the transmission effect of a member reputation deterioration on transaction subjects;finally it expands reputation model of transaction subjects,implements separation equilibrium according to reputation dynamics,inter-period discount factors,payoff gain from misreporting,so a method is proposed to identify originator’s type.In terms of reputation empirical research,at first,reputation measurement indicator is selected more comprehensively,taking into account two dimensions of securities individuals and time,including horizontal comparison of reputation changes of trading subjects with or without fraud penalties,and vertical comparison of reputation changes of trading subjects before and after fraud penalties.And then,it provides an empirical reference for analyzing community reputation and reputation effect between internal members,and specifically provides research ideas for studying reputation effect of reputation community,the interaction and “collective punishment” of community members’ reputation.Finally the applicability of reputation deterioration indicators punished for fraud in the field of credit asset securitization is verified.Meanwhile,it is proved that reputation mechanism takes punishment as result element,and the honest type should be considered when studying securitization transaction subjects’ reputation,indicating rationality of theoretical model construction in this paper.Moreover,this research uses Chinese market data to tell a story about development of China credit asset-backed securities.Finally,based on conclusions of this research,the following three policy suggestions are proposed for relevant regulatory authorities:In view of the effectiveness of reputation controlling moral hazard,it is recommended to integrate reputation measurement into regulatory measures,and reasonably select reputation measurement indicators,evaluation and disclosure methods,and reward and punishment measures corresponding to reputation grading.In addition,China’s regulatory provisions on risk retention have been developed from the horizontal retention method in the “Notice on Further Expanding the Pilot of Credit Asset Securitization”(the People’s Bank of China [2012]No.127)to flexibly choosing vertical,horizontal and other methods in the “Announcement on Further Regulation of Risk Self-retention Behavior of Credit Asset Securitization Originators”(Announcement of the People’s Bank of China and China Banking Regulatory Commission [2013] No.21),but the rules for risk retention are relatively simple and do not distinguish between asset types,the retention rate is uniformly set at 5%.Without harm to interests of originators and investors,it is recommended to formulate detailed and flexible risk retention rules for different types of underlying assets,which is conducive to improving information disclosure,enhancing reputation effects,and improving securitization efficiency.In view of the effectiveness of reputation deterioration indicators,it is recommended that regulatory authorities should strengthen the information disclosure system.Improving the disclosure of fraudulent behavior is the most direct strike to credit asset securitization transaction subjects’ reputation.Timely disclosure of regulatory penalties is conducive to the formation of a “force mechanism”,which is compelled to “lose all losses” pressure of reputation interaction and “collective punishment”,and inhibits the collusion and fraud of credit asset securitization issuers,lead underwriters and originators,in favor of forming a benign ecosystem where reputation restrains market behavior,which can not only improve market allocation efficiency,and protect the interests of investors.Considering the leading role of originator reputation on moral hazard level of credit asset securitization,regulatory authorities need to strengthen the responsibility identification of originating bank,and urge originating bank to be more prudent in the selection and packaging of underlying assets and loan services after securities issuance.In addition,it is recommended to implement quantitative classification of reputation for originating banks based on China’s economic background.Different reputation levels correspond to different business scopes,service fee rate standards and other regulatory requirements,so that investors can identify the quality of their originating credit asset-backed securities through reputation level of originating bank,and fully utilize the signaling function of reputation. |
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