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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by William Mann

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January 2013Financing Through Asset Sales
with Alex Edmans: w18677
Most research on firm financing studies the choice between debt and equity. We model an alternative source – non-core asset sales – and allow asset sales to occur for operational as well as financing motives. We identify three new factors that drive a firm's choice between selling assets and equity. First, equity investors own a claim to the cash raised. Since cash is certain, this mitigates the information asymmetry of equity (the "certainty effect"). In contrast to Myers and Majluf (1984), even if assets exhibit less information asymmetry, the firm issues equity if the financing need is high. This result is robust to using the cash for an uncertain investment. Second, firms can disguise the sale of a low-quality asset as instead being motivated by operational reasons (dissynergies), and ...

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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