Financing Asset Sales and Business Cycles. (22nd August 2017)

• Record Type: Journal Article
• Authors: Arnold, Marc; Hackbarth, Dirk; Xenia Puhan, Tatjana
• Is Part Of: Review of finance. Volume 22:Number 1(2018)
• Page Start: 243
• Page End: 277
• Publication Date: 2017-08-22
• Subjects: Asset sales -- Business cycle -- Financial policy -- Real options; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfx040
• Languages: English
• ISSNs: 1572-3097

Abstract

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.