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Journal of Finance Vol. 60 No. 5 2005

Methods of Payment in Asset Sales: Contracting with Equity versus Cash

Myron B. Slovin1; Marie E. Sushka2; John A. Polonchek3,4

1 Louisiana State University · 2 WPC: Finance · 3 Oklahoma State University Oklahoma City · 4 Eau de Paris (France)

Abstract

We analyze intercorporate asset sales where equity is the means of payment, and compare the results to cash asset sales. Equity deals are value‐enhancing for both buyers, 10%, and sellers, 3%, while cash sales generate seller returns of 1.9% and buyer returns that are not significant. Combined wealth gains are large for equity deals, but modest for cash deals. Equity‐based asset sales are not a precursor to consolidations between buyers and sellers, and do not affect buyer openness to the takeover market. We conclude that the use of buyer equity conveys favorable information about the value of assets and buyers.

DOI
10.1111/j.1540-6261.2005.00802.x
Volume
60
Issue
5
Pages
2385-2407
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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