Financing Through Asset Sales

56 Pages Posted: 19 Mar 2012 Last revised: 11 Aug 2020

See all articles by Alex Edmans

Alex Edmans

London Business School - Institute of Finance and Accounting; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

William Mann

Emory University - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: October 9, 2017


Most research on firm financing studies debt versus equity issuance. We model an alternative source, non-core asset sales, and identify three new factors that contrast it with equity. First, unlike asset purchasers, equity investors own a claim to the firm's balance sheet (the "balance sheet effect"). This includes the cash raised, mitigating information asymmetry. Contrary to the intuition of Myers and Majluf (1984), even if non-core assets exhibit less information asymmetry, the firm issues equity if the financing need is high. Second, firms can disguise the sale of low-quality assets -- but not equity -- as motivated by dissynergies (the "camouflage effect"). Third, selling equity implies a "lemons" discount for not only the equity issued but also the rest of the firm, since both are perfectly correlated (the "correlation effect"). A discount on assets need not reduce the stock price, since non-core assets are not a carbon copy of the firm.

Keywords: Asset sales, financing, pecking order, synergies

JEL Classification: G32, G34

Suggested Citation

Edmans, Alex and Mann, William, Financing Through Asset Sales (October 9, 2017). Management Science, Forthcoming, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 344/2013, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: or

Alex Edmans (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

William Mann

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

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