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Financing Asset Sales and Business Cycles
Journal
Review of Finance
Series
Working Papers on Finance
ISSN
1572-3097
ISSN-Digital
1875-824X
Type
journal article
Date Issued
2018-02-01
Author(s)
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.
Language
English
Keywords
Asset Sales
Wealth Transfer Problem
Leverage
Business Cycles
Real Options.
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Kluwer
Publisher place
St. Gallen
Volume
22
Number
1
Start page
243
End page
277
Subject(s)
Eprints ID
227383