Voluntary corporate liquidations

Kim, E.Han; Schatzberg, John D.

doi:10.1016/0304-405x(87)90007-9

Cited by 40 publications

(16 citation statements)

References 12 publications

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“…Using measures of operation value and exit value following Berger et al (1996), I document that the standard deviation of exit value is about 1/10 of the standard deviation of operation value for the entire sample, and the change in exit value associated with reporting a loss is about 1/15 of the change in operation value (untabulated results). These findings provide evidence for the argument in Kim and Schatzberg (1987). downside firm value and risk, so the likelihood of abandonment is inversely related to both shareholders' future payoffs and risk.…”

Section: Abandonment Option Future Payoffs and Riskmentioning

confidence: 64%

“…For example, firms can use proceeds from exercising the abandonment option to diversify investments and reduce the risk of their undiversifiable human capital (e.g., Amihud and Lev, 1981), or to increase debt capacity and reduce default risk (e.g., MacKay, 2003). Finally, Kim and Schatzberg (1987) show that the announcement of asset dispositions reduces systematic risk (market beta). They attribute this phenomenon to two reasons: (i) Where formerly the firms sold the output of their production, they now are selling the means of production; (ii) Once the proceeds of abandonment (exit value) are known, general market movements will have little effect on the abandoning firms' stock prices.…”

Section: Abandonment Option Future Payoffs and Riskmentioning

confidence: 99%

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Separating Information about Cash Flows from Information about Risk in Losses

2013

SSRN Journal

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This paper reconsiders the information content of losses, specifically, the extent to which losses contain distinct and offsetting information about future cash flows and about risk. Based on theory that suggests exit value is the lower bound of firm value, Iposit that shareholders who decide to abandon the firm, including a portion thereof, will receive the exit value of disposed resources, thereby resolving uncertainty about payoffs, i.e., cash flow uncertainty. Under this view, a higher likelihood of abandonment, proxied by losses, should be associated with both lower payoffs (the exit value of the disposed net assets) and lower risk (because uncertainty about the payoff is partially resolved). Using Vuolteenaho's (2002) method to decompose realized returns into expected returns, cash flow news and discount rate (risk) news, I predict and find that losses provide adverse news about cash flows (the valuation numerator) and favorable news about the discount rate (the valuation denominator). Because the effects of the two types of news are mutually offsetting, the relation between earnings and returns appears weaker for firm-year loss observations than for firm-years with positive income. These results suggest that losses are valuation relevant, in the sense of providing information that is correlated with the information in returns.v

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Section: Abandonment Option Future Payoffs and Riskmentioning

confidence: 64%

Section: Abandonment Option Future Payoffs and Riskmentioning

confidence: 99%

Separating Information about Cash Flows from Information about Risk in Losses

2013

SSRN Journal

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“…In a liquidation, a firm sells its entire portfolio of assets to one or more firms, pays existing liabilities, and pays liquidating dividends to shareholders. Announcements of voluntary liquidations are associated with substantial positive abnormal returns for the liquidating firm's shareholders, indicating a market adjustment to new information (Hite, Owers, and Rogers (1987), Kim and Schatzberg (1987), Skantz and Marchesini (1987)). …”

Section: Ongoing Firms Versus Liquidating Firms As a Samplementioning

confidence: 99%

A Test of a Risk‐adjusted Dividend Capitalization Model: The Case of Liquidating Firms

Skantz

Marchesini

1992

J of Financial Research

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In this paper a direct test of the descriptive validity of the dividend capitalization model is described using the capital asset pricing model (CAPM) to specify the required rate of return. The sample comprises thirty-five voluntarily liquidating firms for which publicly available records of liquidating dividends are available. The sample provides a novel basis for testing the dividend capitalization model since: (l) the firms' risk does not change because of investment activity. (2) the decision horizon for stock valuation purposes is clearly the period over which cash dividends are paid to shareholders. and (3) it is unnecessary to estimate dividend growth rates or terminal stock values. Results are generally consistent with a market that values these stocks by applying a risk-adjusted dividend capitalization model.

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“…They do not distinguish between voluntary and involuntary exit. Kim and Schatzberg (1987) Firms that voluntary liquidate typically have low asset productivity, high book-to-market ratios, and liquid assets (Fleming and Moon, 1995). Aside from insider ownership, any event that negatively impacts management's continued employment tends to increase the likelihood of voluntary liquidation: Fleming and Moon (1995) and Ghosh, Owers, and Rogers (1991) find that previous takeover bids and proximity to bankruptcy encourage management to liquidate.…”

Section: Empirical Findingsmentioning

confidence: 99%

“…Further, the public announcement of a voluntary liquidation typically elicits a strong positive market reaction (Hite, Owers, and Rogers, 1987;Kim and Schatzberg, 1987). Shareholders realize substantial short-term gains following a voluntary liquidation announcement, implying that voluntary liquidations net better corporate resource allocation.…”

Section: Introductionmentioning

confidence: 99%

Three essays on corporate finance modelling

Brotchie¹

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In this thesis I use mathematical modelling techniques to further our understanding of three outstanding corporate finance problems. In each case, I derive a novel model of agent behaviour, calculate an efficient numerical solution, and then explore how the model informs theory and practice. I present my contributions to each problem as separate selfcontained essays. In my third essay I derive a global asset pricing model with endogenous home preference that contains a small open economy with a dividend imputation tax system; Dividend imputation eliminates double taxation by attaching tax credits to distributed dividends for already paid company tax. Domestic investors can use these credits to reduce their personal taxes, while credits are useless to foreign investors. The interplay between imputation eligible domestic investors and ineligible foreign investors makes it difficult to value imputation credits. My model assumes that home bias arises endogenously from the status quo and endowment effect behavioural biases. I find that these biases interact with dividend imputation to drive domestic investors to hold highly concentrated domestic portfolios. I also find that risk-averse domestic investors cannot fully capture the value of imputation credits because concentrating their holdings in the domestic market reduces their diversification.

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Voluntary corporate liquidations

Cited by 40 publications

References 12 publications

Separating Information about Cash Flows from Information about Risk in Losses

Separating Information about Cash Flows from Information about Risk in Losses

A Test of a Risk‐adjusted Dividend Capitalization Model: The Case of Liquidating Firms

Three essays on corporate finance modelling

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