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The Bright Side of Fire Sales

AFA 2015 Boston Meetings Paper

ECGI - Finance Working Paper No. 435/2014

EFA 2016 Oslo Meetings Paper

53 Pages Posted: 30 Jul 2014 Last revised: 12 Jun 2017

Jean-Marie A. Meier

London Business School, Department of Finance

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 17, 2015

Abstract

Firms that buy distressed assets in fire sales earn excess returns that are two percentage points higher than in regular acquisitions. Returns are higher when the seller’s industry has fewer firms, is in poor financial health, and has less redeployable assets. This suggests that buyers can take advantage of fire sales by distressed companies needing to sell assets while restructuring, and that the overall welfare losses associated with fire sales are smaller than previously thought. These results have implications for policy makers evaluating the merits of bailouts as a tool to prevent potential welfare losses associated with fire sales.

Keywords: Fire Sales, Mergers and Acquisitions, Distress, Bankruptcy, Restructuring, Bailouts

JEL Classification: G14, G32, G33, G34, G38, H81

Suggested Citation

Meier, Jean-Marie A. and Servaes, Henri, The Bright Side of Fire Sales (December 17, 2015). AFA 2015 Boston Meetings Paper; ECGI - Finance Working Paper No. 435/2014; EFA 2016 Oslo Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2473123

Jean-Marie A. Meier (Contact Author)

London Business School, Department of Finance ( email )

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

HOME PAGE: http://www.jean-mariemeier.com/

Henri Servaes

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7000 8268 (Phone)
+44 20 7000 8201 (Fax)

HOME PAGE: http://faculty.london.edu/hservaes/

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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