Equity and cash in intercorporate asset sales: theory and evidence

Ulrich Hege, Stefano Lovo, Myron Slovin and Marie Sushka

No 859, HEC Research Papers Series from HEC Paris

Abstract: the authors develop a two-sided asymmetric information model of asset sales that incorporates the key differences from mergers and allows the information held by each party to be impounded in the transaction. Buyer information is conveyed through a first-stage competitive auction. A seller with unfavorable information about the asset accepts the cash offer of the highest bidder. A seller with favorable information proposes a take-it-or-leave-it counteroffer that entails buyer equity. Thus, the cash-equity decision reflects seller, but not buyer, information in contrast to theoretical and empirical findings for mergers. The central prediction of our model is that there are relatively large gains in wealth for both buyers and sellers in equity-based asset sales, whereas cash asset sales generate significantly smaller gains that typically accrue only to sellers. Our empirical results are consistent with the predictions of our theoretical model.

Keywords: Asset sales; means of payment; auctions; two-sided asymmetric information (search for similar items in EconPapers)
JEL-codes: D44 G34 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2006-12-01
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Related works:
Working Paper: Equity and Cash in Intercorporate Asset Sales: Theory and Evidence (2012)
Journal Article: Equity and Cash in Intercorporate Asset Sales: Theory and Evidence (2009)
Working Paper: Equity and Cash in Intercorporate Asset Sales: Theory and Evidence (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:0859

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