Financing, fire sales, and the stockholder wealth effects of asset divestiture announcements
Finlay, William and Marshall, Andrew and McColgan, Patrick (2018) Financing, fire sales, and the stockholder wealth effects of asset divestiture announcements. Journal of Corporate Finance, 50. pp. 323-348. ISSN 0929-1199 (https://doi.org/10.1016/j.jcorpfin.2016.09.005)
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Abstract
We examine the impact of financial distress conditions at the individual firm level, the operating industry level, and economy-wide, on the stock price reaction to divestment announcements. This allows us to isolate distinct fire sale and financing theoretical explanations of asset divestments. We find that abnormal returns are significantly lower when firms divest assets during periods of industry-wide distress. During these periods the natural buyers of the divested assets are likely to have liquidity constraints, and so selling firms receive a lower price (Shleifer and Vishny, 1992). Fire sale effects from divestments are driven by financially constrained firms, firms selling core assets, small firms, and increase with deal size. We find some support for the financing explanation of the stock price response to divestments during periods of overlapping firm-level and economy-wide financial distress conditions, suggesting that divesting assets reduce the expected value of bankruptcy costs for selling firms under these conditions.
ORCID iDs
Finlay, William, Marshall, Andrew ORCID: https://orcid.org/0000-0001-7081-1296 and McColgan, Patrick ORCID: https://orcid.org/0000-0002-7980-6175;-
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Item type: Article ID code: 57422 Dates: DateEvent30 June 2018Published21 September 2016Published Online17 September 2016AcceptedSubjects: Social Sciences > Finance Department: Strathclyde Business School > Accounting and Finance Depositing user: Pure Administrator Date deposited: 16 Aug 2016 08:38 Last modified: 08 Nov 2024 01:35 URI: https://strathprints.strath.ac.uk/id/eprint/57422