Findings show a positive relation between inside debt and asset sales in low liquidity firms, suggesting risk aversion impacts decisions.
We find that CEOs with relatively high inside debt compensation are more likely to engage in non‐core asset sales. Firms selling non‐core assets show higher post‐sale free cash flow, suggesting that inside debt encourages focus‐increasing, cash‐generating transactions. The positive relation between inside debt and asset sales is only evident among firms with low liquidity and high risk, as well as among CEOs with longer career horizons and lower levels of incentive‐based compensation, consistent with liquidity enhancement and risk aversion driving asset‐sale decisions. Our findings highlight the role of inside debt in aligning the interests of executives and the firm's debtholders.
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Akhigbe et al. (2025) studied this question.
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