Abstract
AbstractWe study the effect of the size of financing need on a firm's choice between selling assets and issuing securities to finance its investments. The balance sheet effect predicts that a firm prefers to sell assets when the financing need is relatively small as there is less information asymmetry regarding the value of a (small) subset of its assets. When the financing need is large, a firm prefers issuing securities to selling assets. We find evidence supporting the prediction. Our findings remain unchanged when we employ measures of financing need that are relatively independent of the actual amount of financing raised.
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