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Asset sales and debt-equity swap under asymmetric information

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  • Banerji, Sanjay

Abstract

This paper shows that sale of assets for partial repayment of debt during financial distress may act as a signaling mechanism helping firms to obtain better terms of exchange in debt-equity swap. Although ex-post beneficial, it causes under-investment, ex-ante.

Suggested Citation

  • Banerji, Sanjay, 2008. "Asset sales and debt-equity swap under asymmetric information," Economics Letters, Elsevier, vol. 99(1), pages 189-191, April.
    • Handle: RePEc:eee:ecolet:v:99:y:2008:i:1:p:189-191
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    References listed on IDEAS

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    1. Shleifer, Andrei & Vishny, Robert W, 1992. "Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-1366, September.
    2. Lang, Larry & Poulsen, Annette & Stulz, Rene, 1995. "Asset sales, firm performance, and the agency costs of managerial discretion," Journal of Financial Economics, Elsevier, vol. 37(1), pages 3-37, January.
    3. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-1365, November.
    4. Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
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    Cited by:

    1. Zambujal-Oliveira, João & Duque, João, 2011. "Operational asset replacement strategy: A real options approach," European Journal of Operational Research, Elsevier, vol. 210(2), pages 318-325, April.

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