Dynamic Asset Sales with a Feedback Effect
The Review of Financial Studies, Forthcoming. Doi.org/10.1093/rfs/hhz058
59 Pages Posted: 19 Sep 2014 Last revised: 7 Oct 2019
Date Written: May 26, 2019
I analyze a dynamic model of over-the-counter asset sales in which a manager receives stock-sensitive compensation and a transaction conveys information about the firm's value. I examine how market response to an asset sale feeds back to the manager's decision on the timing and the price of the sale, and analyze the unique pattern of stock prices before and after the sale. The implications of bargaining power, inventories, gains from trade, and the introduction of a vesting period are discussed. The model sheds light on observed properties of corporate sell-offs, as well as explains market dry-ups during downturn periods.
Keywords: asset sales, information externalities, asset prices, information disclosure
JEL Classification: G12, G14, D82, C73
Suggested Citation: Suggested Citation