Fire sale discount: Evidence from the sale of minority equity stakes

Serdar Dinc, Isil Erel and Rose Liao

Journal of Financial Economics, 2017, vol. 125, issue 3, 475-490

Abstract: Most empirical studies estimate the impact of fire sales either without the benefit of market prices from frequent trades, as with aircraft sales, or without observing transaction prices, as with the forced sales of equity securities by mutual funds facing outflows. We observe both by studying firms’ sales of minority equity stakes in publicly listed third parties. We estimate the distressed sale discount to be about 8% while controlling for liquidity and for industry, or about double the 4% estimated for equity sales by distressed mutual funds. The discount becomes 13–14% if the stake sold is more than 5% of the firm or is sold as a block. Prices recover after distressed sales.

Keywords: Fire sale; Liquidity; Distressed sale; Price recovery (search for similar items in EconPapers)
JEL-codes: G12 G14 G32 G34 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:125:y:2017:i:3:p:475-490

DOI: 10.1016/j.jfineco.2017.06.009

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