The Real Determinants of Asset Sales

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 productivi...

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Bibliographic Details
Published in:	The Journal of finance (New York) 2008-10, Vol.63 (5), p.2231-2262
Main Author:	YANG, LIU
Format:	Article
Language:	eng
Subjects:	Asset management Business cycles Business studies Capital investments Corporate finance Economic models Economic recessions Economic shock Financial assets Financial management Financial services industries Fixed costs Industrial capacity Industrial market Industrial productivity Modeling Productivity Securities sales Studies U.S.A
Online Access:	Get full text
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Summary:	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.
ISSN:	0022-1082 1540-6261