This study examines the effect of asset securitization (SEC) reporting readability on credit risk by employing American bank holding company (BHC) data from year 2000 to 2016. Empirical results of this study show that a BHC’s asset securitization reporting readability is negatively related to the BHC’s credit risk when controlling for other BHC characteristics variables and considering endogeneity issues. This study also finds that the SEC reporting readability effect is mainly through the incomplete information channel. In addition, the implementations of SFAS No.166 (2009), SFAS No.167 (2009) and Dodd-Frank Act (2010) strengthen the SEC reporting readability effect. Moreover, the scale of on-balance sheet securitized assets (e.g. contractual total retained interests, ARI) weakens the SEC reporting readability effect, especially for total retained interests from consumer loan securitizations (CONSRI). Furthermore, the study also demonstrates that the positive tone of SEC reporting negatively relates to BHC credit risk while the negative tone of SEC reporting has the opposite effect. 

Keywords: Asset securitization (SEC); Text reporting readability; Text reporting tones; Credit risk; SFAS No.166 (2009); SFAS No.167 (2009); Dodd-Frank Act (2010)​