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Asset Sales and Debt Capacity

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  • Andrei Shleifer
  • Robert W. Vishny

Abstract

In this paper, we explore the link between asset sales end debt capacity. Asset sales are a common way far firms to raise cash, and so present an alternative to security issues for firms near financial distress. We argue that liquid assets -- those that can be resold at attractive terms -- are good candidates for debt finance because financial distress for firms with such assets is relatively inexpensive. We apply this logic to explain variation in debt capacity across industries and over the business cycle, as well as to the rise in U.S. corporate leverage in the 1980s.

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File URL: http://www.nber.org/papers/w3618.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3618.

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Date of creation: Feb 1991
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Publication status: published as Journal of Finance, Vol. 47, No. 4, September 1992,"Liquidation Values and Debt Capacity: A Market Equilibrium Approach"
Handle: RePEc:nbr:nberwo:3618

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Cited by:
  1. Caprio, Gerard, Jr. & Honohan, Patrick, 1999. "Beyond capital ideals : restoring banking stability," Policy Research Working Paper Series 2235, The World Bank.
  2. J. Caprio & P. Honohan, 2000. "Restoring Banking Stability: Beyond Supervised Capital Requirements," South African Journal of Economics, Economic Society of South Africa, vol. 68(1), pages 5-22, 03.
  3. Aghion, P. & Hart, O. & Moore, J., 1992. "The Economics of Bankruptcy Reform," Working papers 92-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Asquith, Paul & Gertner, Robert & Scharfstein, David, 1994. "Anatomy of Financial Distress: An Examination of Junk-Bond Issuers," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 625-58, August.
  5. Mark Gertler & R. Glenn Hubbard, 1993. "Corporate Financial Policy, Taxation, and Macroeconomic Risk," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 286-303, Summer.
  6. Harold M. Somers, 1991. "Leverage: The Tax Incentives," UCLA Economics Working Papers 625, UCLA Department of Economics.

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