Capital Structure and Asset Reallocations

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9709427 Maksimovic/Phillips One of the unexplained puzzles in financial economics is the periodic increases and decreases or "waves" in asset reallocations that have occurred over time. This project models and tests the factors that influence partial-firm asset sales across and within industries in a industry equilibrium framework. The project begins with a model of how assets are reallocated under perfect financial markets. It shows how the amount of asset sales and the types of firms engaged in asset sales and purchases vary over time both within and across industries. It identifies how the amount of asset sales and the types of firms engaged in asset sales and purchases vary over time both within and across industries. The project identifies factors based on efficiency and industry characteristics that are important to asset reallocations and then asks if a firm's financial structure and financial structures of industry firms influence asset reallocations. The project investigates two potential ways a firm's financial structure might influence the process by which assets are reallocated to firms: agency costs and cash flow shortages. It uses plant- and firm-level data from the Bureau of Census.