Dissertations, Theses, and Capstone Projects

Date of Degree


Document Type


Degree Name





Edward Xuejun Li

Committee Members

Masako Darrough

Xi Dong

Monica Neamtiu

Subject Categories

Accounting | Contracts | Corporate Finance


Direct Asset Sales, Information Frictions, Contracting Mechanisms, Representations and Warranties, Complementarity


Using a unique, hand-collected dataset of direct asset sales agreements in the SEC filings, I provide the first large-sample evidence on how contracting mechanisms are used to mitigate information frictions in these important transactions. The conflict of interests is unique because the scarcity of asset-specific financial information makes target assets difficult to value and monitor, especially when such transactions are usually consummated in a short period. I first show an extensive use of representations and warranties, covenants, and special payment arrangements in these contracts when severe information asymmetry exists between buyers and sellers. Importantly, further results suggest that these contracting mechanisms tend to be used jointly rather than as substitutes for one another. A robust test based on the adoption of SFAS 141(R) provides strong evidence on such complementarity. Additional tests also suggest a significant relation between covenants and contract duration. Overall, my study provides novel evidence on direct asset sales’ contracting mechanisms and their relationships.