Corporate real estate sales and agency costs of managerial discretion

摘要

Purpose – The purpose of this paper is to examine empirically the financing hypothesis of Lang et al. for asset sales in the context of corporate real estate transactions. Design/methodology/approach – Exploiting the concept that monitoring can reduce agency problem of managerial discretion, this paper employs the event-study methodology and regression analysis to empirically verify the hypothesis. Findings – The empirical results show that the stock market responds more favorably to arm's-length corporate real estate sales by low agency-cost firm-years than those by high agency-cost firm-years. The result supports the financing hypothesis that implies a negative relation between stock market responses to asset sales and degrees of agency costs. Research limitations/implications – Given the separation of ownership and control, management cannot be expected to make value-enhancing decisions on corporate real estate sales without appropriate mechanism to align managerial and shareholder interests. Originality/value – This paper not only adds to the literature on corporate sell-offs, but also contributes to those on corporate real estate sales. Existing studies focusing on corporate real estate sales have not yet examined Langet al.'s hypothesis. This paper contributes to the literature by providing empirical evidence supporting the financing hypothesis in the context of corporate real estate transactions.