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Does asset redeployability affect corporate investment and equity value?

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  • Rong, Yuen
  • Tian, Cunzhi
  • Li, Lifang
  • Zheng, Xinwei

Abstract

We explain the effect of asset redeployability on corporate investment and equity value in the framework of contract theory with asymmetric information. Our theoretical study suggests that asset redeployability tends to enhance a financially-constrained firm’s investment level, investment-cash flow sensitivity and equity value, but does not have such effects on an unconstrained firm. Empirically, we use 2318 Chinese listed companies as sample over the period 2008–2014 and find evidence confirming theoretical predictions. Our findings demonstrate that asset redeployability is important in determining the corporate investment and equity value of constrained firms, thus managers should be aware of the asset characteristics and liquidation values when making asset transactions.

Suggested Citation

  • Rong, Yuen & Tian, Cunzhi & Li, Lifang & Zheng, Xinwei, 2020. "Does asset redeployability affect corporate investment and equity value?," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 479-492.
    • Handle: RePEc:eee:reveco:v:70:y:2020:i:c:p:479-492
    DOI: 10.1016/j.iref.2020.06.039
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    5. Rashid Zaman & Nader Atawnah & Muhammad Nadeem & Stephen Bahadar & Irfan Haider Shakri, 2022. "Do liquid assets lure managers? Evidence from corporate misconduct," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1425-1453, July.
    6. Chen, Jia & Yi, Xingjian & Liu, Hao, 2024. "Asset redeployability and firm value amidst the COVID-19 pandemic: A real options perspective," International Review of Financial Analysis, Elsevier, vol. 94(C).

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