with Henri Servaes, 2019, Review of Financial Studies, 32(11), 4228–4270.
SSRN version is identical to RFS version except for formatting and copy editing.
Fire sales are not as bad as widely thought since buyers gain substantially from them and the externalities of fire sales for other stakeholders are limited.
Conferences: AFA, Christmas Meeting of German Economists Abroad, EFA, European Center for Corporate Control Studies Conference, IMF Annual Macro-Financial Research Conference, SFI Corporate Finance Workshop, TADC.
Abstract: Firms that buy assets in fire sales earn excess returns that are two percentage points higher than in regular acquisitions. The mechanism behind this result is the reduced bargaining power of the seller. We find no difference in real effects or in the combined returns for buyers and sellers between fire sales and regular acquisitions, suggesting that the quality of the match is similar in both types of transactions. The externalities of fire sales for other stakeholders are limited. These results indicate that the welfare losses associated with fire sales are smaller than previously thought.