Conventional research on raising capital focuses on the two usual suspects that inhabit balance sheets: equity and debt. But as authors Alex Edmans and William Mann remind readers in a recent Wharton research paper, selling non-core assets also fills corporate coffers with cash.
"Financing Through Asset Sales" probes the choice to issue equity or sell non-core assets such as a division or a plant. As a means of raising cash, under what conditions are asset sales or equity issues likely to add more value? Edmans, a Wharton finance professor and a faculty research fellow at the National Bureau of Economic Research, and Mann, a Wharton PhD candidate, have an answer.
They propose three forces behind decisions to sell equity or sell non-core assets, which they call the camouflage, correlation and certainty effects. These three effects pierce a veil that up to now has concealed underlying causes of corporate strategy and market reactions. Resulting insights, they say, furnish managers with a better framework for reaching decisions about the amount and purpose of financing, pivotal factors in the long-term viability of any business large or small.
To read the full, original article click on this link: Equity, Debt or Assets? A New Lens for Looking at Raising Capital
