Abstract

http://ssrn.com/abstract=2024513
 
 

References (45)



 
 

Citations (1)



 


 



Financing Through Asset Sales


Alex Edmans


London Business School - Institute of Finance and Accounting; University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

William Mann


UCLA Anderson School

June 27, 2014

ECGI - Finance Working Paper No. 344/2013

Abstract:     
Most research on firm financing studies the choice between debt and equity. We model an alternative source -- non-core asset sales -- and identify three new factors that drive a firm's choice between selling assets and equity. First, equity investors own a claim to the cash raised. Since cash is certain, this mitigates the information asymmetry of equity (the "certainty effect"). In contrast to Myers and Majluf (1984), even if non-core assets exhibit less information asymmetry, the firm issues equity if the financing need is high. This result is robust to using the cash for an uncertain investment. Second, firms can disguise the sale of a low-quality asset as instead motivated by operational reasons -- dissynergies -- and thus receive a higher price (the "camouflage effect"). Third, selling equity implies a "lemons" discount for not only the equity issued but also the rest of the firm, since its value is perfectly correlated. In contrast, a "lemons" discount on assets need not lead to a low stock price, as the asset is not a carbon copy of the firm (the "correlation effect").

Number of Pages in PDF File: 39

Keywords: Asset sales, financing, pecking order, synergies

JEL Classification: G32, G34

working papers series


Download This Paper

Date posted: March 19, 2012 ; Last revised: June 30, 2014

Suggested Citation

Edmans, Alex and Mann, William, Financing Through Asset Sales (June 27, 2014). ECGI - Finance Working Paper No. 344/2013. Available at SSRN: http://ssrn.com/abstract=2024513 or http://dx.doi.org/10.2139/ssrn.2024513

Contact Information

Alex Edmans (Contact Author)
London Business School - Institute of Finance and Accounting ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
University of Pennsylvania - The Wharton School ( email )
3733 Spruce Street
Philadelphia, PA 19104-6374
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
William Mann
UCLA Anderson School ( email )
United States
Feedback to SSRN


Paper statistics
Abstract Views: 2,411
Downloads: 706
Download Rank: 18,625
References:  45
Citations:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.313 seconds