Financing Asset Sales and Business Cycles

Marc Arnold (), Dirk Hackbarth and Tatjana-Xenia Puhan ()

No 1320, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: This paper analyzes the decision of firms to sell assets to fund investments (financing asset sales). We document empirical patterns of financing asset sales that cannot be explained with traditional motives for selling assets, such as financial distress or financing constraints. Using a structural model, we show that financing asset sales attenuate the debt overhang problem, because they imply lower wealth transfers from equity to debt than identical but equity financed investments. This motive to reduce the wealth transfer problem can explain how financing asset sales empirically relate to firm characteristics, and to business cycles.

Keywords: Asset Sales; Wealth Transfer Problem; Leverage; Business Cycles; Real Options (search for similar items in EconPapers)
JEL-codes: D92 E44 G12 G32 G33 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2013-11
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (6)

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http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1320.pdf (application/pdf)

Related works:
Journal Article: Financing Asset Sales and Business Cycles* (2018)
Working Paper: Financing Asset Sales and Business Cycles (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2013:20

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