Asset Sales and Subsequent Acquisitions

37 Pages Posted: 31 Jul 2020

See all articles by Giang Nguyen

Giang Nguyen

affiliation not provided to SSRN

Le Vu

Centre for Global Business, Monash Business School, Monash University

Date Written: August 16, 2018

Abstract

In this paper, we find that the decisions to retain asset sale proceeds are positively related to the likelihood of subsequent acquisitions. We demonstrate that retention decisions destroy the wealth of shareholders. First, we document negative market reactions towards a retention decision, and the effect is more pronounced when the decision is followed by an unexpected acquisition. Second, we show that subsequent acquisitions reduce the wealth of shareholders, especially when the acquisitions are unexpected by the market. Third, retention sellers' long-run performance declines when they pursue an acquisition following the sale of their assets. Altogether, we provide novel evidence suggesting that retention sellers tend to reallocate proceeds to specific acquisitions that are detrimental to shareholders' wealth.

Keywords: Asset sale, Acquisition, Retention, Payout, Announcement return

JEL Classification: G34

Suggested Citation

Nguyen, Giang and Vu, Le, Asset Sales and Subsequent Acquisitions (August 16, 2018). International Review of Financial Analysis. 2018. 60, 87-97, Available at SSRN: https://ssrn.com/abstract=3643658

Giang Nguyen

affiliation not provided to SSRN

Le Vu (Contact Author)

Centre for Global Business, Monash Business School, Monash University ( email )

Monash Business School
Monash University
Clayton, VIC 3800
Australia

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