Asymmetric Information and Asset Sales versus Mergers and Acquisitions

We propose average absolute value of cumulative abnormal returns around earnings announcements (ACARE) as a measure of asymmetric information about a firm’s value. Using panel data, we show that higher asymmetric information is associated with lower asset sales frequency but higher probability of the firm being acquired in whole. We validate these results in the context of natural disasters, which raise both asymmetric information and financing need, compared to similar but unaffected control firms. We further show that private acquirers play an important role in the market for corporate assets by acquiring firms in part or in whole when there is higher asymmetric information about their market value.