The profitability of asset sales as an explanation of asset divestitures |
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| Affiliation: | 1. Institute of Industrial Economics, Jinan University, Guangzhou 510632, China;2. Sun Yat-Sen Business School, Sun Yat-Sen University, Guangzhou 510275, China;3. Business School and Shenzhen Research Institute, Chinese University of Hong Kong, Shatin, N.T., Hong Kong;1. Real Estate and Housing, College of Management and Economics, University of Guelph, Guelph, ON, N1G 2W1, Canada;2. School of Business, Montclair State University, 1 Normal Ave, Partridge Hall 429, Montclair, NJ 07043, United States;1. UQ Business School, Colin Clark Building, Blair Drive, University of Queensland, St Lucia, Queensland 4072, Australia;2. Standard Chartered Bank, 8 Marina Boulevard, Marina Bay Financial Centre Tower 1, 018981, Singapore |
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| Abstract: | Using Korean fixed asset divestiture data, I extend the investigation of the financing hypothesis of divestitures proposed by Lang et al. (Lang, L., Poulsen, A., Stulz, R., 1995. Asset sales, firm performance, and the agency costs of managerial discretion, Journal of Financial Economics 37, 3.37). In particular, I take into account the profitability of announced asset divestitures and I employ a unique sample constructed to avoid effects that might confound the results. I also take into account the financial condition of the selling firms. The results are consistent with the financing hypothesis proposed by Lang et al. and show that the financing hypothesis of divestitures is robust to controls for the profitability of asset sales and the financial condition of selling firms. |
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