Selling to Buy: Asset Sales and Method of Payment in M&As

Abstract

This study establishes that asset sale proceeds constitute an economically important omitted variable that determines the method of payment in acquisitions. We find that firms with asset sales are more likely to subsequently conduct cash acquisitions. In economic terms, this translates into 42.76% higher likelihood to use cash as method of payment. We attribute this finding to the increased cash liquidity offered by asset sales. Our results are robust after controlling for potential endogeneity bias, and highlight, in a setting of two pure asset restructuring events, the importance of asset sales to the crucial choice of payment method in acquisitions.