Abstract
Theoretical research identifies balance sheet, underinvestment, correlation, and timing effects for a firm’s financing choice between an asset sale and a seasoned equity offering (SEO). Ours is the first study that empirically validates these effects. We find the probability of an SEO increases with financing need (balance sheet effect) and past returns (timing effect). Whereas, the probability of an asset sale increases with financial leverage (underinvestment effect) and it is higher for a multisegment firm (correlation effect). The balance sheet effect strengthens for firms with high past returns and growth opportunities, and it weakens for firms with high financial leverage.
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