Asset sales by financially distressed firms

Brown, David T.; James, Christopher M.; Mooradian, Robert M.

doi:10.1016/0929-1199(94)90004-3

Cited by 157 publications

(87 citation statements)

References 15 publications

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“…Our findings complement previous work that associates asset sales with alternative motives. Asquith, Gertner, and Scharfstein (1994), Brown, James, and Mooradian (1994), and Weiss and Wruck (1998) analyze the role of financial distress for asset sales.…”

Section: Introductionmentioning

confidence: 99%

Financing Asset Sales and Business Cycles*

2017

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This paper analyzes the decision of firms to sell assets to fund investments (financing asset sales). For a sample of U.S. manufacturing firms during the 1971-2010 period, we document new stylized facts about financing asset sales that cannot be explained by traditional motives for selling assets, such as financial distress or financing constraints. Using a structural model of financing, investment, and macroeconomic risk, we show that financing asset sales attenuate the debt overhang problem, because asset sale financed investments imply lower wealth transfers from equity to debt than otherwise identical but equity financed investments. This novel motive to reduce the debt overhang problem can explain how financing asset sales relate to firm characteristics and business cycles. We also confirm with simulated panels of model firms that are structurally similar to their empirical counterpart that they indeed feature the dynamic patterns of financing asset sales we observe in the data for real firms.JEL Classification Numbers: D92, E32, E44, G12, G32, G33.

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Section: Introductionmentioning

confidence: 99%

Financing Asset Sales and Business Cycles*

2017

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“…Chapter 11 may have a -positive or negative -effect on selection outside of Chapter 11 (Mooradian (1994)). …”

Section: Introductionmentioning

confidence: 99%

“…A substantial amount of asset reallocation is accomplished through partial liquidations (asset sales), as shown by Asquith, Gertner, and Scharfstein (1994), Brown, James, and Mooradian (1994), and Franks and Torous (1994).…”

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confidence: 99%

Financial Distress as a Selection Mechanism: Evidence from the United States

Kahl

2001

SSRN Journal

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Abstract:This paper follows the process of financial distress from its onset to its resolution for a sample of 95 firms. Only about one-third of the firms survive as independent companies. A firm's short-run and long-run survival probability is positively affected by its operating performance, but its size, leverage, and debt structure complexity have no effect on its survival chances. The post-distress operating performance of the surviving firms is very close to the industry median.

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“…Distressed firms frequently engage in asset sales (Asquith et al, 1994). Brown et al (1994) present evidence that asset sales by distressed firms reflect pressure from short-term creditors, and that, in contrast with asset sales by healthy firms, they benefit creditors and hurt shareholders. Finally, debt restructuring can also lead to a reallocation of control powers within the firm (Gilson, 1990).…”

Section: Discussionmentioning

confidence: 99%

Debt Restructuring with Multiple Creditors and the Role of Exchange Offers

Detragiache

Garella

1996

Journal of Financial Intermediation

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Exploiting the analogy with the private provision of a public good, this paper studies debt restructuring with an arbitrary number of creditors using mechanism design. Creditors differ in the value they expect to receive in bankruptcy, and this value is private information. As with public goods, too little debt forgiveness is granted in equilibrium relative to the first best. Creditors are more willing to make concessions under common values than under pure private values, an opposite phenomenon to the ''winners' curse'' in auctions. Exchange offers are an optimal restructuring scheme for the debtor, because they allow creditors to contribute to debt forgiveness at different levels. Journal of Economic Literature Classification Numbers: G34, G33.

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Asset sales by financially distressed firms

Cited by 157 publications

References 15 publications

Financing Asset Sales and Business Cycles*

Financing Asset Sales and Business Cycles*

Financial Distress as a Selection Mechanism: Evidence from the United States

Debt Restructuring with Multiple Creditors and the Role of Exchange Offers

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