Asset Sales, Investment Opportunities, and the Use of Proceeds

47 Pages Posted: 6 Sep 2004

See all articles by Thomas W. Bates

Thomas W. Bates

Arizona State University - Department of Finance


This study examines the allocation of cash proceeds following 400 subsidiary sales between 1990 and 1998. Retention probabilities are increasing in the divesting firm's contemporaneous growth opportunities and expected investment. Retaining firms, however, also systematically over-invest relative to an industry benchmark. Shareholder returns to retention decisions are positively correlated with growth opportunities and benchmarked investment, but negatively correlated with benchmarked investment for firms with poor growth opportunities. Shareholder returns to debt distributions are increasing in industry benchmarked leverage. Overall, the results of this study cohere with the hypothesized trade-off between the investment efficiencies associated with retained proceeds and the agency costs of managerial discretion and debt.

Keywords: Asset Sale, Payout Policy

JEL Classification: G31, G35

Suggested Citation

Bates, Thomas W., Asset Sales, Investment Opportunities, and the Use of Proceeds. Journal of Finance, Forthcoming. Available at SSRN:

Thomas W. Bates (Contact Author)

Arizona State University - Department of Finance ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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