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The value implications of restrictions on asset sales
Author(s) -
Sibilkov Valeriy,
Straska Miroslava,
Waller H. Gregory
Publication year - 2013
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2013.04.001
Subject(s) - asset (computer security) , enterprise value , business , agency cost , net asset value , debt , value (mathematics) , economics , finance , limiting , restructuring , flexibility (engineering) , asset turnover , monetary economics , microeconomics , profitability index , return on assets , corporate governance , shareholder , mechanical engineering , computer security , management , machine learning , computer science , engineering
This paper examines the effect of restrictions over asset disposition, measured by the ratio of secured debt to fixed assets, on firm value. We find evidence consistent with two non‐mutually exclusive hypotheses. (1) Restrictions on the disposition of assets reduce firm value by limiting a firm's ability to restructure assets or to raise funds to finance higher NPV projects. (2) Restrictions on asset disposition increase firm value by limiting agency costs of managerial discretion over uncommitted assets. The net effect of restrictions over asset disposition on firm value is determined by potential agency problems and the need for operating flexibility.