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Equity and cash in intercorporate asset sales : theory and evidence

Author

Listed:
  • Hege, Ulrich
  • Lovo, Stefano
  • Slovin, Myron
  • Sushka, Marie
Abstract
the authors develop a two-sided asymmetric information model of asset sales that incorporates the key differences from mergers and allows the information held by each party to be impounded in the transaction. Buyer information is conveyed through a first-stage competitive auction. A seller with unfavorable information about the asset accepts the cash offer of the highest bidder. A seller with favorable information proposes a take-it-or-leave-it counteroffer that entails buyer equity. Thus, the cash-equity decision reflects seller, but not buyer, information in contrast to theoretical and empirical findings for mergers. The central prediction of our model is that there are relatively large gains in wealth for both buyers and sellers in equity-based asset sales, whereas cash asset sales generate significantly smaller gains that typically accrue only to sellers. Our empirical results are consistent with the predictions of our theoretical model.

Suggested Citation

  • Hege, Ulrich & Lovo, Stefano & Slovin, Myron & Sushka, Marie, 2006. "Equity and cash in intercorporate asset sales : theory and evidence," HEC Research Papers Series 859, HEC Paris.
    • Handle: RePEc:ebg:heccah:0859
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Frank Stähler, 2014. "Partial ownership and cross-border mergers," Journal of Economics, Springer, vol. 111(3), pages 209-237, April.
    2. Hege, Ulrich & Lovo, Stefano & Slovin, Myron B. & Sushka, Marie E., 2018. "Divisional buyouts by private equity and the market for divested assets," Journal of Corporate Finance, Elsevier, vol. 53(C), pages 21-37.
    3. Kien Cao & Jeff Madura, 2011. "Determinants of the Method of Payment in Asset Sell‐Off Transactions," The Financial Review, Eastern Finance Association, vol. 46(4), pages 643-670, November.
    4. Angélica María Sánchez-Riofrío & Luis Ángel Guerras-Martín & Francisco Javier Forcadell, 2015. "Business portfolio restructuring: a comprehensive bibliometric review," Scientometrics, Springer;Akadémiai Kiadó, vol. 102(3), pages 1921-1950, March.
    5. Jason Shachat & Lijia Tan, 2015. "An Experimental Investigation of Auctions and Bargaining in Procurement," Management Science, INFORMS, vol. 61(5), pages 1036-1051, May.
    6. Daniel Ferreira & Emanuel Ornelas & John L. Turner, 2015. "Unbundling Ownership and Control," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(1), pages 1-21, March.
    7. Hege, Ulrich & Lovo, Stefano & Slovin, Myron B. & Sushka, Marie E., 2009. "Asset sales and the role of buyers: strategic buyers versus private equity," MPRA Paper 39549, University Library of Munich, Germany, revised Feb 2012.
    8. Bajoori, Elnaz & Peeters, Ronald & Wolk, Leonard, 2024. "Security auctions with cash- and equity-bids: An experimental study," European Economic Review, Elsevier, vol. 163(C).
    9. Nguyen, Giang & Vu, Le, 2018. "Asset sales and subsequent acquisitions," International Review of Financial Analysis, Elsevier, vol. 60(C), pages 87-97.
    10. Harford, Jarrad & Uysal, Vahap B., 2014. "Bond market access and investment," Journal of Financial Economics, Elsevier, vol. 112(2), pages 147-163.
    11. Levon Goukasian & Emily J. Huang & Qingzhong Ma & Wei Zhang, 2019. "Are Acquirers Efficiently Priced? Evidence from Subsequent Earnings Announcements," Review of Economics & Finance, Better Advances Press, Canada, vol. 16, pages 15-30, May.
    12. Borisova, Ginka & Cowan, Arnold R., 2014. "Government asset sales, economic nationalism, and acquirer wealth effects," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 351-368.
    13. Nguyen, Giang & Nguyen, Hai, 2019. "Does seller status matter in inter-corporate asset sales?," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 97-110.
    14. Miriam Flickinger & Miriam Zschoche, 2018. "Corporate divestiture and performance: an institutional view," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(1), pages 111-131, March.
    15. Jory, Surendranath R. & Madura, Jeff & Ngo, Thanh N., 2012. "Deal structure decision in the global market for divested assets," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 104-116.
    16. Uysal, Vahap B., 2011. "Deviation from the target capital structure and acquisition choices," Journal of Financial Economics, Elsevier, vol. 102(3), pages 602-620.
    17. Chen, Fan & Sanger, Gary C. & Slovin, Myron B., 2013. "Asset sales in the mutual fund industry: Who gains?," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4834-4849.

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    More about this item

    Keywords

    Asset sales; means of payment; auctions; two-sided asymmetric information;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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