Les Cahiers de Recherche - HEC Paris
Equity and cash in intercorporate asset sales : theory and evidence
(), Stefano Lovo
(), Myron Slovin and Marie Sushka
Abstract: the authors develop a two-sided asymmetric information
model of asset sales that incorporates the key differences from mergers and
allows the information held by each party to be impounded in the
transaction. Buyer information is conveyed through a first-stage
competitive auction. A seller with unfavorable information about the asset
accepts the cash offer of the highest bidder. A seller with favorable
information proposes a take-it-or-leave-it counteroffer that entails buyer
equity. Thus, the cash-equity decision reflects seller, but not buyer,
information in contrast to theoretical and empirical findings for mergers.
The central prediction of our model is that there are relatively large
gains in wealth for both buyers and sellers in equity-based asset sales,
whereas cash asset sales generate significantly smaller gains that
typically accrue only to sellers. Our empirical results are consistent with
the predictions of our theoretical model.
Keywords: Asset sales; means of payment; auctions; two-sided asymmetric information; (follow links to similar papers)
JEL-Codes: D44; G34; (follow links to similar papers)
46 pages, December 1, 2006
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