Financing Need and the Choice Between Asset Sale and Security Issuance

69 Pages Posted: 23 Nov 2016 Last revised: 16 Apr 2018

See all articles by Chintal A. Desai

Chintal A. Desai

Virginia Commonwealth University (VCU)

Manu Gupta

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate

Date Written: March 27, 2018

Abstract

We study the effect of financing need on a firm’s choice between issuing securities and selling assets to finance its investments. The balance sheet effect predicts that a firm prefers to sell assets when the financing need is small as there is less information asymmetry regarding the value of a subset of its assets than that regarding the value of securities, which represent claims on its entire balance sheet. With the increase in financing need, the security issuance over an asset sale becomes preferable. We find evidence supporting this prediction. Our results are robust to the use of outcome independent measures of financing need.

Keywords: Financing choice; Asset sales; Security issuance; Debt issuance; Seasoned equity offerings.

JEL Classification: G32; G34

Suggested Citation

Desai, Chintal and Gupta, Manu, Financing Need and the Choice Between Asset Sale and Security Issuance (March 27, 2018). Available at SSRN: https://ssrn.com/abstract=2873803 or http://dx.doi.org/10.2139/ssrn.2873803

Chintal Desai

Virginia Commonwealth University (VCU) ( email )

1015 Floyd Avenue
Richmond, VA 23284
United States

Manu Gupta (Contact Author)

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
66
Abstract Views
496
rank
416,713
PlumX Metrics