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Equity and cash in intercorporate asset sales : theory and evidence

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Author Info
Hege, Ulrich ()
Lovo, Stefano ()
Slovin, Myron
Sushka, Marie

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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.

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Publisher Info
Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 859.

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Length: 46 pages
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:ebg:heccah:0859

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Related research
Keywords: Asset sales; means of payment; auctions; two-sided asymmetric information;

Other versions of this item:

Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Myron B. Slovin & Marie E. Sushka & John A. Polonchek, 2005. "Methods of Payment in Asset Sales: Contracting with Equity versus Cash," Journal of Finance, American Finance Association, vol. 60(5), pages 2385-2407, October. [Downloadable!] (restricted)
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    Other versions:
  7. Barber, Brad M. & Lyon, John D., 1996. "Detecting abnormal operating performance: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 41(3), pages 359-399, July. [Downloadable!] (restricted)
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    Other versions:
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