Skin in the Game and Credible Signaling in Securitization: Are Fintechs Different?

Abstract

This study explores the association between risk retention by originators (skin in the game) and the performance of securitized assets. We combine hand-collected and publicly available data on 85 Brazilian receivable funds with a single originator from January 2013 to December 2020. We find that skin in the game is a buffer against observable risks in accordance with the buffer hypothesis, although the reputation of originators that are financial institutions in the loan market can alleviate moral hazard concerns. For funds with fintech originators, the opposite holds: enhancements are indeed a signal against the unobservable quality of receivables.