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Fire sale discount: Evidence from the sale of minority equity stakes

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  • Dinc, Serdar
  • Erel, Isil
  • Liao, Rose

Abstract

Most empirical studies estimate the impact of fire sales either without the benefit of market prices from frequent trades, as with aircraft sales, or without observing transaction prices, as with the forced sales of equity securities by mutual funds facing outflows. We observe both by studying firms’ sales of minority equity stakes in publicly listed third parties. We estimate the distressed sale discount to be about 8% while controlling for liquidity and for industry, or about double the 4% estimated for equity sales by distressed mutual funds. The discount becomes 13–14% if the stake sold is more than 5% of the firm or is sold as a block. Prices recover after distressed sales.

Suggested Citation

  • Dinc, Serdar & Erel, Isil & Liao, Rose, 2017. "Fire sale discount: Evidence from the sale of minority equity stakes," Journal of Financial Economics, Elsevier, vol. 125(3), pages 475-490.
  • Handle: RePEc:eee:jfinec:v:125:y:2017:i:3:p:475-490
    DOI: 10.1016/j.jfineco.2017.06.009
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    5. Vansteenkiste, Cara, 2018. "Essays on corporate takeovers," Other publications TiSEM 57ddfd7c-d14f-4ca0-b921-7, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    Fire sale; Liquidity; Distressed sale; Price recovery;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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