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Size of Financing Need and the Choice between Asset Sales and Security Issuances
Author(s) -
Desai Chintal A.,
Gupta Manu
Publication year - 2018
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12242
Subject(s) - finance , business , asset (computer security) , balance sheet , external financing , information asymmetry , internal financing , value (mathematics) , fixed asset , economics , microeconomics , computer security , computer science , debt , machine learning , production (economics)
We study the effect of the size of financing need on a firm's choice between selling assets and issuing securities to finance its investments. The balance sheet effect predicts that a firm prefers to sell assets when the financing need is relatively small as there is less information asymmetry regarding the value of a (small) subset of its assets. When the financing need is large, a firm prefers issuing securities to selling assets. We find evidence supporting the prediction. Our findings remain unchanged when we employ measures of financing need that are relatively independent of the actual amount of financing raised.