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Product Market Competition and the Severity of Distressed Asset Sales

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  • Pablo Salgado
  • Vinicius Carrasco
  • João Manoel Pinho De Mello

Abstract

This article explores the effect of an industry’s market structure on the liquidation value of assets. We show that when firms with financial constraints compete for the gains arising from market concentration, they expend insufficient efforts to deploy assets across industries, leading to significant liquidation discounts when compared with an efficient benchmark. Equilibrium distress costs and private costs of leverage should increase with the rents linked to concentration in the product market.

Suggested Citation

  • Pablo Salgado & Vinicius Carrasco & João Manoel Pinho De Mello, 2017. "Product Market Competition and the Severity of Distressed Asset Sales," Review of Finance, European Finance Association, vol. 21(5), pages 2007-2043.
    • Handle: RePEc:oup:revfin:v:21:y:2017:i:5:p:2007-2043.
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    File URL: http://hdl.handle.net/10.1093/rof/rfw005
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    References listed on IDEAS

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    Cited by:

    1. Simone Boccaletti, 2021. "Asset Specificity and the Secondary Market for Productive Assets," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 7(3), pages 411-437, November.

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    More about this item

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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