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Asset Sales by Manufacturing Firms in India

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  • Vikash Gautam

Abstract

In this paper we study 325 large scale asset sale transactions by Indian manufacturing firms in the period 1996 to 2008. We find that the likelihood of asset sales increases with the firm’s low capacity of debt utilisation and decreases with size, profitability, operating performance and solvency. We also find that the performance of firms after they sell assets do not improve in profitability, solvency or operations. The only difference the episodes of asset sales make is some reduction in leverage. We contrast with the existing episodes of asset sales in developed countries as the performance of firms there, after they sell assets, improves in all parameters.

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Bibliographic Info

Article provided by The Indian Econometric Society in its journal Journal of Quantitative Economics.

Volume (Year): 10 (2012)
Issue (Month): 1 (January)
Pages: 136-155

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Handle: RePEc:jqe:jqenew:v:10:y:2012:i:1:p:136-155

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Postal: Managing Editor, Journal of Quantitative Economics, Indira Gandhi Institute of Development Research (IGIDR), Gen. A.K. Vaidya Marg, Goregaon (E), Mumbai 400 065 , INDIA
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  1. John, Kose & Ofek, Eli, 1995. "Asset sales and increase in focus," Journal of Financial Economics, Elsevier, vol. 37(1), pages 105-126, January.
  2. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  3. Bradley, Michael & Desai, Anand & Kim, E. Han, 1983. "The rationale behind interfirm tender offers : Information or synergy?," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 183-206, April.
  4. Vojislav Maksimovic, 2001. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?," Journal of Finance, American Finance Association, vol. 56(6), pages 2019-2065, December.
  5. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
  6. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  7. Hite, Gailen L. & Owers, James E. & Rogers, Ronald C., 1987. "The market for interfirm asset sales : Partial sell-offs and total liquidations," Journal of Financial Economics, Elsevier, vol. 18(2), pages 229-252, June.
  8. Lang, Larry & Poulsen, Annette & Stulz, Rene, 1995. "Asset sales, firm performance, and the agency costs of managerial discretion," Journal of Financial Economics, Elsevier, vol. 37(1), pages 3-37, January.
  9. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, 04.
  10. Geoffrey Poitras & Trevor Wilkins & Yoke Shang Kwan, 2002. "The Timing of Asset Sales: Evidence of Earnings Management?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(7&8), pages 903-934.
  11. Athey, Michael J. & Laumas, Prem S., 1994. "Internal funds and corporate investment in India," Journal of Development Economics, Elsevier, vol. 45(2), pages 287-303, December.
  12. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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