Asset Redeployability, Liquidation Value, and Endogenous Capital Structure Heterogeneity

78 Pages Posted: 8 Jun 2017 Last revised: 27 Oct 2018

See all articles by Antonio E. Bernardo

Antonio E. Bernardo

University of California, Los Angeles (UCLA) - Finance Area

Alex Fabisiak

University of California, Los Angeles (UCLA) - Anderson School of Management

Ivo Welch

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Date Written: October 25, 2018

Abstract

Firms with lower leverage are not only less likely to experience financial distress but are also better positioned to acquire assets from other distressed firms. With endogenous asset sales and values, each firm’s debt choice then depends on the choices of its industry peers. With indivisible assets, otherwise identical firms may adopt different debt policies — some choosing highly levered operations (e.g., to take advantage of tax benefits), others choosing more conservative policies to wait for acquisition opportunities. Our key empirical implication is that the acquisition channel can induce firms to reduce debt when assets become more redeployable.

Keywords: Debt, Distress, Fire Sales, Redployability, Heterogeneity Endogenous Pricing

JEL Classification: G32, G33

Suggested Citation

Bernardo, Antonio E. and Fabisiak, Alex and Welch, Ivo, Asset Redeployability, Liquidation Value, and Endogenous Capital Structure Heterogeneity (October 25, 2018). Available at SSRN: https://ssrn.com/abstract=2981809 or http://dx.doi.org/10.2139/ssrn.2981809

Antonio E. Bernardo

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-2198 (Phone)
310-206-5455 (Fax)

Alex Fabisiak

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Ivo Welch (Contact Author)

University of California, Los Angeles (UCLA) ( email )

110 Westwood Plaza
C519
Los Angeles, CA 90095-1481
United States
310-825-2508 (Phone)

HOME PAGE: http://www.ivo-welch.info

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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