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Asset sales and debt-equity swap under asymmetric information

Sanjay Banerji

Economics Letters, 2008, vol. 99, issue 1, 189-191

Abstract: This paper shows that sale of assets for partial repayment of debt during financial distress may act as a signaling mechanism helping firms to obtain better terms of exchange in debt-equity swap. Although ex-post beneficial, it causes under-investment, ex-ante.

Date: 2008
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Handle: RePEc:eee:ecolet:v:99:y:2008:i:1:p:189-191