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The Real Determinants of Asset Sales



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    • Yang is at UCLA Anderson School. This paper is part of my doctoral dissertation at University of Maryland. I wish to thank my advisors, Vojislav Maksimovic (Chair), Gordon Phillips, Nagpurnanand Prabhala, Pete Kyle, and John Rust, for their encouragement and helpful discussions throughout my dissertation. Also, I would like to acknowledge helpful comments from Antonio Falato, Gerard Hoberg, Mark Loewenstein, Mark Chen, Steve Heston, Gurdip Bakshi, and Liang Zuo; seminar participants at University of Maryland, University of Arizona, Cornell University, Southern Methodist University, University of Texas at Dallas, University of Washington, UCLA, Virginia Tech, University of Minnesota, the 2006 China International Conference in Finance, and the 2006 FMA Conference; and especially an anonymous referee, and the editor Cam Harvey. All remaining errors are mine. The research in this paper was conducted while the author was a Special Sworn Status researcher of the U.S. Census Bureau at the Center of Economic Studies. Research results and conclusions expressed are those of the author and do not necessarily reflect the views of the Census Bureau. This paper has been screened to ensure that no confidential data are revealed.


I develop a dynamic structural model in which a firm makes rational decisions to buy or sell assets in the presence of productivity shocks. By identifying equilibrium asset prices, the model also examines the aggregate asset sales activity over the business cycle. It shows that changes in productivity, rather than productivity levels, affect decisions: Firms with rising productivity buy assets and firms with falling productivity downsize (“rising buys falling”). As such, industries in which firms have less persistent and more volatile productivity experience greater asset reallocation. Using plant-level data from Longitudinal Research Database (LRD), I find strong support for the model's predictions.