Asset Sales, Firm Performance, and the Agency Costs of Managerial Discretion

53 Pages Posted: 28 Dec 2000 Last revised: 21 Sep 2010

See all articles by Annette B. Poulsen

Annette B. Poulsen

University of Georgia - Department of Banking and Finance; European Corporate Governance Institute (ECGI)

Larry Lang

Leonard N. Stern School of Business - Department of Economics

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: February 1994

Abstract

We argue that management sells assets when doing so provides the cheapest funds to pursue its objectives rather than for operating efficiency reasons alone. This hypothesis suggests that (1) firms selling assets have high leverage and/or poor performance, (2) a successful asset sale is good news and (3) the stock market discounts asset sale proceeds retained by the selling firm. In support of this hypothesis, we find that the typical firm in our sample performs poorly before the sale and that the average stock-price reaction to asset sales is positive only when the proceeds are paid out.

Suggested Citation

Poulsen, Annette B. and Lang, Larry and Stulz, Rene M., Asset Sales, Firm Performance, and the Agency Costs of Managerial Discretion (February 1994). NBER Working Paper No. w4654, Available at SSRN: https://ssrn.com/abstract=254538

Annette B. Poulsen (Contact Author)

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Department of Finance
Athens, GA 30602-6253
United States
706-542-4450 (Phone)

HOME PAGE: http://www.terry.uga.edu/directory/profile/apoulsen/

European Corporate Governance Institute (ECGI) ( email )

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Larry Lang

Leonard N. Stern School of Business - Department of Economics

269 Mercer Street
New York, NY 10003
United States

Rene M. Stulz

Ohio State University (OSU) - Department of Finance ( email )

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United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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1000 Brussels
Belgium

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