Restructuring Using Operating Asset Exchanges: Issues and Evidence

This study examines restructuring in which a firm divests an operating asset in exchange for another operating asset. Since liquidity, capital structure, and distributional issues are not immediately associated with tax-free asset-for-asset exchanges, they are well suited for examining the competing hypotheses related to divestitures. We find that the abnormal returns associated with asset exchanges are generally smaller than those associated with other divestiture restructurings except when indications of value are provided. Our analysis identifies positive valuation effects for firms undertaking focus-enhancing exchanges, but a dominating consideration is whether the value of the units traded is indicated. Copyright (c) 2010, The Eastern Finance Association.