Asset sales, asset exchanges, and shareholder wealth in China

In this paper, we study a sample of 1376 corporate asset sales and 250 asset exchanges in China between 1998 and 2006. We find that corporate asset sales in China enhance firm value with a cumulative abnormal return (CAR) of 0.46% for the pre-announcement five-day period, which is consistent with the evidence discovered in both U.K. and U.S. For companies that exchanged assets during the sample period, the pre-announcement five-day CAR of 1.32% is statistically significant. We also discover that gains from divesting assets are positively related to managerial performance measured by Tobin's q ratio and the relative size of the asset sold or exchanged. Well-managed (high-q) companies are more likely to sell or exchange assets in a value-maximizing fashion than poorly managed (low-q) companies. Furthermore, asset-seller gains are not related to enhancing corporate focus, but improving corporate focus by exchanging for core assets enhances firm value.