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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.

Suggested Citation

  • Andrei Shleifer & Robert W. Vishny, 1991. "Asset Sales and Debt Capacity," NBER Working Papers 3618, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3618
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    Cited by:

    1. Steven N. Kaplan & Jeremy C. Stein, 1991. "The Evolution of Buyout Pricing and Financial Structure," NBER Working Papers 3695, National Bureau of Economic Research, Inc.
    2. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 215-244 National Bureau of Economic Research, Inc.
    3. Paul Asquith & Robert Gertner & David Scharfstein, 1991. "Anatomy of Financial Distress: An Examination of Junk-Bond Issuers," NBER Working Papers 3942, National Bureau of Economic Research, Inc.
    4. Kenneth A. Froot, 1994. "Foreign Direct Investment in Eastern Europe: Some Economic Considerations," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 293-318 National Bureau of Economic Research, Inc.
    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. 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, March.
    7. Harold M. Somers, 1991. "Leverage: The Tax Incentives," UCLA Economics Working Papers 625, UCLA Department of Economics.
    8. Caprio, Gerard, Jr. & Honohan, Patrick, 1999. "Beyond capital ideals : restoring banking stability," Policy Research Working Paper Series 2235, The World Bank.

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