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Asset Sales by Manufacturing Firms in India

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  • Vikash Gautam

Abstract

In this paper we study 325 large scale asset sale transactions by Indian manufacturing firms in the period 1996 to 2008. We find that the likelihood of asset sales increases with the firm’s low capacity of debt utilisation and decreases with size, profitability, operating performance and solvency. We also find that the performance of firms after they sell assets do not improve in profitability, solvency or operations. The only difference the episodes of asset sales make is some reduction in leverage. We contrast with the existing episodes of asset sales in developed countries as the performance of firms there, after they sell assets, improves in all parameters.

Suggested Citation

  • Vikash Gautam, 2012. "Asset Sales by Manufacturing Firms in India," Journal of Quantitative Economics, The Indian Econometric Society, vol. 10(1), pages 136-155, January.
  • Handle: RePEc:jqe:jqenew:v:10:y:2012:i:1:p:136-155
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    References listed on IDEAS

    as
    1. Vojislav Maksimovic, 2001. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?," Journal of Finance, American Finance Association, vol. 56(6), pages 2019-2065, December.
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    3. Bradley, Michael & Desai, Anand & Kim, E. Han, 1983. "The rationale behind interfirm tender offers : Information or synergy?," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 183-206, April.
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    5. Geoffrey Poitras & Trevor Wilkins & Yoke Shang Kwan, 2002. "The Timing of Asset Sales: Evidence of Earnings Management?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(7&8), pages 903-934.
    6. 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.
    7. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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    9. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, April.
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    11. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    12. John, Kose & Ofek, Eli, 1995. "Asset sales and increase in focus," Journal of Financial Economics, Elsevier, vol. 37(1), pages 105-126, January.
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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