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Asset sales and debt-equity swap under asymmetric information

  • Banerji, Sanjay
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    This paper shows that sale of assets for partial repayment of debt during financial distress may act as a signaling mechanism helping firms to obtain better terms of exchange in debt-equity swap. Although ex-post beneficial, it causes under-investment, ex-ante.

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    File URL: http://www.sciencedirect.com/science/article/B6V84-4P37JC2-8/1/b1789dc7e838581a238479b4c590b32d
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    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 99 (2008)
    Issue (Month): 1 (April)
    Pages: 189-191

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    Handle: RePEc:eee:ecolet:v:99:y:2008:i:1:p:189-191
    Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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    1. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
    2. Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
    3. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-65, November.
    4. 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.
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