The Impact of Asset Sales on the Method of Payment Used in Subsequent Acquisitions and Their Value Effect

This study examines the impact of asset sale proceeds on the method of payment used in subsequent acquisitions, along with their value effect. In line with increased liquidity offered by asset sales, firms that sell assets are more likely to subsequently conduct cash acquisitions. Additionally, we find that in subsequent cash acquisitions firms using cash stemming from asset sales experience higher announcement abnormal returns compared to firms using cash from sources of funds other than asset sales. This finding is consistent with the financing hypothesis which suggests that funds from asset sales can be associated with relatively lower cost than other sources of funds