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Financing Asset Sales and Business Cycles

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  • Arnold, Marc

    ()

  • Hackbarth, Dirk

    ()

  • Puhan, Tatjana-Xenia

    ()

Abstract

This paper analyzes the decision of firms to sell assets to fund investments (financing asset sales). We document empirical patterns of financing asset sales that cannot be explained with traditional motives for selling assets, such as financial distress or financing constraints. Using a structural model, we show that financing asset sales attenuate the debt overhang problem, because they imply lower wealth transfers from equity to debt than identical but equity financed investments. This motive to reduce the wealth transfer problem can explain how financing asset sales empirically relate to firm characteristics, and to business cycles.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/sfwpfi/WPF-1320.pdf
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Bibliographic Info

Paper provided by University of St. Gallen, School of Finance in its series Working Papers on Finance with number 1320.

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Length: 58 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:usg:sfwpfi:2013:20

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Related research

Keywords: Asset Sales; Wealth Transfer Problem; Leverage; Business Cycles; Real Options;

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