Financing Asset Sales and Business Cycles

Item Type Journal paper
Abstract

Using a dynamic model of financing, investment, and macroeconomic risk, we investigate when firms sell assets to fund investments (financing asset sales) across the business cycle. Equity financed investment transfers wealth from equity to debt because asset volatility declines and earnings increase when firms invest. Financing asset sales reduce asset collateral and, hence, transfer wealth back from debt to equity. Exploring the dynamics of the heretofore overlooked “asset sale versus external equity” financing margin across business cycles helps explain novel stylized facts about asset sales and their business cycle patterns that cannot be rationalized by traditional motives for selling assets.

Authors Arnold, Marc; Hackbarth, Dirk & Puhan, Tatjana-Xenia
Journal or Publication Title Review of Finance
Language English
Keywords Asset Sales, Wealth Transfer Problem, Leverage, Business Cycles, Real Options.
Subjects finance
HSG Classification contribution to scientific community
Refereed Yes
Date 1 February 2018
Publisher Kluwer
Place of Publication St. Gallen
Series Name Working Papers on Finance
Volume 22
Number 1
Page Range 243-277
ISSN 1572-3097
ISSN-Digital 1875-824X
Publisher DOI 10.1093/rof/rfx040
Depositing User Prof. Dr. Marc Arnold
Date Deposited 18 Nov 2013 15:09
Last Modified 05 Feb 2019 13:40
URI: https://www.alexandria.unisg.ch/publications/227383

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Citation

Arnold, Marc; Hackbarth, Dirk & Puhan, Tatjana-Xenia (2018) Financing Asset Sales and Business Cycles. Review of Finance, 22 (1). 243-277. ISSN 1572-3097

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https://www.alexandria.unisg.ch/id/eprint/227383
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