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Asset sales and subsequent acquisitions

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  • Nguyen, Giang
  • Vu, Le

Abstract

In this paper, we find that the decisions to retain asset sale proceeds are positively related to the likelihood of subsequent acquisitions. We demonstrate that retention decisions destroy the wealth of shareholders. First, we document negative market reactions towards a retention decision, and the effect is more pronounced when the decision is followed by an unexpected acquisition. Second, we show that subsequent acquisitions reduce the wealth of shareholders, especially when the acquisitions are unexpected by the market. Third, retention sellers' long-run performance declines when they pursue an acquisition following the sale of their assets. Altogether, we provide novel evidence suggesting that retention sellers tend to reallocate proceeds to specific acquisitions that are detrimental to shareholders' wealth.

Suggested Citation

  • Nguyen, Giang & Vu, Le, 2018. "Asset sales and subsequent acquisitions," International Review of Financial Analysis, Elsevier, vol. 60(C), pages 87-97.
    • Handle: RePEc:eee:finana:v:60:y:2018:i:c:p:87-97
    DOI: 10.1016/j.irfa.2018.09.005
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    Cited by:

    1. Usman, Adam, 2022. "Cash holdings and real asset liquidity," International Review of Financial Analysis, Elsevier, vol. 83(C).

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    More about this item

    Keywords

    Asset sale; Acquisition; Retention; Payout; Announcement return;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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