Premium
Methods of Payment in Asset Sales: Contracting with Equity versus Cash
Author(s) -
SLOVIN MYRON B.,
SUSHKA MARIE E.,
POLONCHEK JOHN A.
Publication year - 2005
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2005.00802.x
Subject(s) - business , equity (law) , cash , payment , asset (computer security) , equity value , finance , monetary economics , economics , debt , computer security , debt levels and flows , external debt , political science , computer science , law
We analyze intercorporate asset sales where equity is the means of payment, and compare the results to cash asset sales. Equity deals are value‐enhancing for both buyers, 10%, and sellers, 3%, while cash sales generate seller returns of 1.9% and buyer returns that are not significant. Combined wealth gains are large for equity deals, but modest for cash deals. Equity‐based asset sales are not a precursor to consolidations between buyers and sellers, and do not affect buyer openness to the takeover market. We conclude that the use of buyer equity conveys favorable information about the value of assets and buyers.