Welfare Losses Associated with Fire Sales Are Smaller than Previously Documented

When companies in financial difficulty are forced to sell assets – especially real assets such as factories, business units, real estate, or the entire company – the news is often seen as negative all around. In these situations, often referred to as “fire sales,” companies are forced to sell assets below fair value (see Pulvino, 1998[1]), and the spillover effects can be costly as well. These spillover costs, or externalities, include plant closings and job losses that hurt employees, suppliers, customers, and competitors (see Goolsbee and Krueger, 2015[2]). Fire sales may also depress the values of … Read more