Asset securitization offers banks the possibility of altering their capital structures and the financial intermediation process. This study shows that the introduction of securitization is associated with fundamental changes in the funding policies of banks. We present evidence of more intense use of securitization by banks with stronger growth opportunities, liquidity constraints, costlier alternative sources of funding, and restricted access to capital markets due to adverse selection. Securitization is observed to be higher in the pecking order of financing choices of small- and medium-sized banks and nonlisted banks, which are likely to face more severe adverse selection problems. (JEL G32, G21) 1.

This paper investigates the relation between firms' locations and their corporate finance decisions. We develop a model where being located within an industry cluster increases opportunities to make acquisitions, and to facilitate those acquisitions, firms within clusters maintain more financial slack. Consistent with our model we find that firms located within industry clusters make more acquisitions, and have lower debt ratios and larger cash balances than their industry peers located outside clusters. We also document that firms in high‐tech cities and growing cities maintain more financial slack. Overall, the evidence suggests that growth opportunities influence firms' financial decisions.