Wierd request, need help with a paragraph in my thesis (accounting)

Cyrus

im doing a thesis entitled:

the timing of asset sales: evidence of earnings management?

similar studies have been done in the US ,singapore and the Uk im doing it for irish companies

anyway my problem is that i have a nice paragraph on why a company would sell an investment asset, goes like this:

What factors cause firms to sell investment assets? Some sales are due to portfolio management considerations. This may involve eliminating the under performing investment assets and attempting to purchase other investment assets which will outperform. Other possible factors include a need to rebalance the investment asset portfolio to achieve sufficient diversification in the face of ongoing investment asset purchases. In many other cases, the cash flow generated by the sale of investment assets is used in the purchase of fixed assets required to support and expand core businesses. For example, Lang et al. (1995) argue that ‘management sells assets when doing so provides the cheapest funds to pursue its objectives rather than for operating efficiency reasons alone.’ In terms of the costs associated with different sources of financing, sales of investment assets would have a preference rank below current earnings but above debt increases or new issues of equity. Firms with strong earnings growth will generally have a larger pool of current earnings to finance expansion than firms with declining earnings

but i need similar on why a company would sell fixed assets and i cannot for the life of me find anything, can anyone help?

sceptre

Unless your name is Geoffrey Poitras and you're professor of finance in a small uni in British Columbia I wouldn't use that paragraph above without putting it in a box and saying "I didn't write this":D

Seriously though, any management accounting book should give you what you're looking for.

dod

I should have thought that if the cost of holding a fixed asset was greater than the cost of funds to an organisation then the equity of the organisation would be better engaged by liquidating those particular fixed assets and deploying those funds elsewhere in the organisation.

Also if the tax write down on a depreciated asset allowed the fixed asset to be realised for a value greater than its residual book value, then a profit opportunity exists on that fixed asset.

If technology opportunities existed where an existing fixed asset were replaceable by new apparatus which will render the old fixed asset worthless, then if any residual value could be realised for that fixed asset by selling it now, it would make more economic sense than to hold it until the point that its value were to be written down to zero by the next generation equipment.

I'm sure there a million other situations in which it makes sense to liquidate fixed assets, these ones are only off the top of my head.

Cyrus

Unless your name is Geoffrey Poitras and you're professor of finance in a small uni in British Columbia I wouldn't use that paragraph above without putting it in a box and saying "I didn't write this"

lol dont worry all works are referenced, this is all part of a literature review

Cyrus

btw how did u know about that paper?

Victor

Originally posted by Cyrus
but i need similar on why a company would sell fixed assets and i cannot for the life of me find anything, can anyone help?

Many firms sell off their property to raise working capital either sale & lease-back or otherwise, simply because they are asset rich and cash poor.

sceptre

Originally posted by Cyrus
btw how did u know about that paper?

Very quick google search for the first line in your quoted paragraph. It was the only result. I was poking fun really & not implying anything - I've taken undiscoverable plagarism to new levels in the past myself

I'll have a quick poke around in my mgt accounting books for relevant stuff over the weekend (prob Sunday) - you've my sincere sympathy for doing a lit review (nasty messy things)