Selling to Buy: Asset Sales and Acquisitions
44 Pages Posted: 18 Nov 2016 Last revised: 6 Oct 2020
Date Written: September 27, 2019
This study explores the impact of joint corporate asset restructuring decisions where firms sell an asset in order to fund a subsequent acquisition (selling-to-buy). We find that firms with asset sales are associated with increased acquisition probability. The effect is more pronounced for financially constrained firms. We also show that, in addition to the established improved firm efficiency from focus-increasing asset sales, financially constrained firms obtain the necessary funds to conduct focus-increasing acquisitions, improving further their efficiency. This translates into both higher long-run operating performance and stock abnormal returns at the asset sale announcement.
Keywords: Asset sales, Acquisitions, Restructuring, Operating efficiency, Abnormal returns, Financial constraints
JEL Classification: G14, G32, G34
Suggested Citation: Suggested Citation