NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Asset Sales, Firm Performance, and the Agency Costs of Managerial Discretion

Larry Lang, Annette Poulsen, Rene M. Stulz

NBER Working Paper No. 4654
Issued in February 1994
NBER Program(s):   AP   CF

We argue that management sells assets when doing so provides the cheapest funds to pursue its objectives rather than for operating efficiency reasons alone. This hypothesis suggests that (1) firms selling assets have high leverage and/or poor performance, (2) a successful asset sale is good news and (3) the stock market discounts asset sale proceeds retained by the selling firm. In support of this hypothesis, we find that the typical firm in our sample performs poorly before the sale and that the average stock-price reaction to asset sales is positive only when the proceeds are paid out.

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Document Object Identifier (DOI): 10.3386/w4654

Published: Journal of Financial Economics, 1995, pp. 3-38

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