WHO GAINS FROM CORPORATE ASSET SALES?

This study documents that sell‐offs, on average, are firm value enhancing, as both stockholders and bondholders gain from such transactions. Further, it reveals that sell‐offs can be wealth redistributing, value destroying, or value enhancing depending on the way the sale proceeds are distributed and the motive underlying the sell‐off. The wealth effects on stockholders and bondholders are not always symmetrical. Our results suggest that benefits from the sale of assets that do not strategically fit the firm's core business accrue primarily to stockholders, while benefits from distress‐related sell‐offs accrue to bondholders. Sell‐offs to thwart takeovers destroy firm value. We document that a significant proportion of sell‐offs results in wealth transfers between securityholders. Restrictive dividend covenants play an important role in protecting bondholders from wealth expropriation. Our analysis suggests that the relative size of the asset sale, the uses of the sale proceeds, and the degree of protection afforded bondholders via a dividend restriction may be relevant in explaining the direction of wealth transfer.