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Asset Liquidity and the Determinants of Asset Sales by Poorly Performing Firms

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  • Timothy A. Kruse

Abstract

This study analyzes factors that potentially are associated with higher incidences of asset sales by poorly performing firms. Consistent with Shleifer and Vishny’s (1992) asset liquidity model, I find that firms are more likely to sell assets if their industry’s growth rate is higher. The relation is stronger among firms less likely to suffer from a lack of flexibility arising from poor financial health. Firms also are more likely to sell assets if they are suffering from low debt capacity, experiencing the nonroutine turnover of its top officer, or have made acquisitions prior to their performance decline.

Suggested Citation

  • Timothy A. Kruse, 2002. "Asset Liquidity and the Determinants of Asset Sales by Poorly Performing Firms," Financial Management, Financial Management Association, vol. 31(4), Winter.
  • Handle: RePEc:fma:fmanag:kruse02
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    Cited by:

    1. Gema Pastor-Agustín & Marisa Ramírez-Alesón & Manuel Espitia-Escuer, 2011. "Complementary Assets and Investment Decisions," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 25-39, November.
    2. Vikash Gautam & Ashish Singh & Sarthak Gaurav, 2014. "Cash Holdings and Finance Constraints in Indian Manufacturing Firms," Research in Applied Economics, Macrothink Institute, vol. 6(3), pages 56-75, September.
    3. Officer, Micah S., 2007. "The price of corporate liquidity: Acquisition discounts for unlisted targets," Journal of Financial Economics, Elsevier, vol. 83(3), pages 571-598, March.
    4. Shin, G. Hwan, 2008. "The profitability of asset sales as an explanation of asset divestitures," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 555-571, November.
    5. Canina, Linda & Carvell, Steven A. & Ma, Qingzhong & Ukhov, Andrey D., 2013. "Business cycle and asset valuation in the gaming industry," Journal of Business Research, Elsevier, vol. 66(9), pages 1689-1695.
    6. Gema Pastor-Agustín & Marisa Ramírez-Alesón & Manuel Espitia-Escuer, 2011. "Complementary Assets and Investment Decisions," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 25-39, November.
    7. Ushijima, Tatsuo, 2009. "R&D intensity and acquisition and divestiture of corporate assets: Evidence from Japan," Journal of Economics and Business, Elsevier, vol. 61(5), pages 415-433, September.
    8. Richard J. Arend, 2008. "Differences in RBV strategic factors and the need to consider opposing factors in turnaround outcomes," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(4), pages 337-355.
    9. Alain Praet, 2011. "Voluntary firm restructuring: why do firms sell or liquidate their subsidiaries?," Annals of Finance, Springer, vol. 7(4), pages 449-476, November.

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