Information cost and securitization

Securitization increases the complexity of assets while incurring associated costs, which enhances asset liquidity by curbing private information production and facilitating asset resale. The liquidity improvement reduces the immediate financing costs for firms, incentivizing them to engage in securitization. Firms have stronger incentive to securitize when the cost of securitization is lower or the underlying assets are less liquid. •High information production costs contribute to the liquidity of securitized assets.•Information production costs can be determined endogenously by firms.•Share of securitized assets increases as securitization costs decrease.•Share of securitized assets decreases as underlying assets become more liquid.