Dr Christos Mavis

University of Surrey

Abstract:

This study examines the impact of asset sale proceeds on the method of payment used in subsequent acquisitions, along with their value effect. In line with increased liquidity offered by asset sales, firms that sell assets are more likely to subsequently conduct cash acquisitions. Additionally, we find that in subsequent cash acquisitions firms using cash stemming from asset sales experience higher announcement abnormal returns compared to firms using cash from other sources of funds such as internally generated cash flows and equity issuance which are associated with agency costs and information asymmetry effects, respectively. The higher wealth effects are consistent with the financing hypothesis which suggests that funds from asset sales can be associated with relatively lower cost than other sources of funds.