Determinants of the Method of Payment in Asset Sell-Off Transactions


  • We wish to thank Robert Van Ness (the editor), two reviewers, Victor Kalafa, and seminar participants at Florida Atlantic University and at the 2011 Eastern Finance Association for their very helpful suggestions.

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Using a sample of asset sell-off transactions from January 1990 to April 2010, we find that the method of payment used in asset sell-off transactions is associated with several characteristics cited in the acquisitions research that reflect cash constraints of the bidder. Specifically, bidders facing more stringent cash constraints are more likely to use equity when purchasing assets, while sellers subjected to cash constraints prefer cash when selling assets. Second, we find that the variation in method of payment among asset sell-off transactions also is partially explained by variables representing asymmetric information. Third, we apply our model to an expanded sample that includes non-U.S. sellers of assets and find that an equity payment is more likely when sellers are based in countries that have relatively high country risk (more government restrictions), weak shareholder rights, and a weak legal system. Thus, it appears that bidders prefer that sellers share in the risk of the transaction under these conditions.