Does Seller Status Matter in Inter-Corporate Asset Sales?

Abstract

We find that private sellers generate lower returns for the buyer than public sellers in inter-corporate asset transactions. The documented gain difference cannot be explained by the buyer’s characteristics, sample selection effects, the means of payments, and the quality of divested assets. Empirical results, however, show that the acquirer's absolute gain difference is larger when the asset is sold by non-operating private firms like private equity funds, and it decreases when the seller's ownership of directors is higher, suggesting that managerial incentives between private and public sellers have an important influence on the buyer's gain. Consistently, we document a lower withdrawal rate, on average, in transactions with public sellers, implying that public sellers are more likely to accept a low-premium offer compared to private sellers. Also, they tend to engage in subsequent acquisitions or diversify beyond their core business after divesting assets.

Keywords: Asset sales; Managerial discretion; Acquirer return; Acquisition

JEL Classification: G34