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

Posted: 10 Aug 1999

See all articles by Larry H.P. Lang

Larry H.P. Lang

The Chinese University of Hong Kong (CUHK) - Department of Finance

Annette B. Poulsen

University of Georgia - Department of Banking and Finance

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: June 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, and (2) the stock market discounts asset sales 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.

JEL Classification: G34

Suggested Citation

Lang, Hsien Ping Larry and Poulsen, Annette B. and Stulz, Rene M., Asset Sales, Firm Performance, and the Agency Costs of Managerial Discretion (June 1994). Available at SSRN: https://ssrn.com/abstract=5414

Hsien Ping Larry Lang

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong
+85 2 2609 7761 (Phone)
+85 2 2603 6586 (Fax)

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/

Rene M. Stulz

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

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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