This paper examines the influence of capital structure change on the value creation from asset sales. We find significant positive equity and debt excess returns are concentrated in the subsample of highly leveraged firms that use the proceeds to retire debt. Low leverage firms display no consistent significant excess equity or bond returns. The existent literature has focused on efficiency redistribution, increase in focus, and access to capital for investment as the primary drivers of value creation from asset sales and agency costs as a major factor that mitigates this value creation. The evidence presented in this paper suggests that the primary driver of value creation is from capital structure change for highly leveraged firms.

Abstract We compare investment policies across public and private firms in different institutional settings. Using a large cross-country data set, we find that public listed firms are better positioned to take advantage of growth opportunities than private firms. Specifically, public listed firms exhibit higher investment sensitivity to growth opportunities than private firms. This differential, however, only exists in countries with well-developed stock markets. Furthermore, the relative advantage public firms have at allocating capital depends on the degree of agency costs and reliance on external equity.