We find that a firm's cost of equity is inversely related to the level of social capital in the state where the firm is headquartered. Further, the cost of equity declines when firms move their headquarters from a low-social-capital state to a state with higher social capital. The negative relation between social capital and the cost of equity is statistically significant only for firms facing relatively low levels of product–market competition and is not significant for firms with good firm-specific reputations. We interpret these findings as indicating that social capital serves as a societal monitoring mechanism, and can be value-enhancing for firms that are perceived as having greater agency problems and face weak product market monitoring.

Examining stockholder and bondholder wealth of acquirers and sellers, we find that asset sales are firm value enhancing for the seller but value neutral for the acquirer. Although divestitures are typically viewed as more synergistic and friendly transactions than takeovers, we find using a matched acquirer–seller sample, that the net wealth effect from the transaction is not significantly different from zero. However, those transactions that involve high-q bidders and low-q sellers create maximum value for acquirers and for the transaction as a whole. Further, low-q bidder/low-q seller transactions are value destroying. We find that seller gains are only related to the seller’s managerial performance. We document that private lender monitoring enhances transactional value in corporate divestitures. Collectively, the analysis shows that well-managed and highly monitored firms are more likely to benefit from asset sale transactions.