Asset sales and product markets

This study investigates the information content revealed by the asset sale announcement about the viability of the trading relationship with the large customer. We find the asset sale announcement reveals largely negative information about the relationship viability, and thus affects the asset selling supplier and the large customer of the asset seller negatively. We find the negative information is more evident when the post-sale servicing commitment is important and the asset seller makes intense relationship-specific investment. Consistently, the asset sale announcement also reveals reduced incentives to maintain the major trading relationship. The relationship is more likely to be terminated or shortened and the proportion of the bilateral trading is more likely to be reduced after the asset sale when post-sale servicing commitment is important. Our results show that the asset sale announcement contains negative-information-signal on the trading relationship with the large customer.