## The Effect of Leverage on Asset Sales Between Financial Institutions

_IMF Working Papers, September 8, 2017_

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## Bibliographic details
- Authors: Sonali Das
- Published: September 8, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484318171.001

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### Overview
- Author: Sonali Das  
- Publication date: September 8, 2017  
- Series: Working Paper No. 2017/200  
- Summary: This paper analyzes how the leverage of financial institutions affects their demand for assets and the resulting value of transactions between financial institutions.

### Key Findings
- There is a positive relationship between buyer capital and the likelihood of buying assets.
- There is a positive relationship between buyer capital and the value of the deal.
- Institutions that are the least constrained in their ability to raise funding are those that demand assets and pay more for them.
- The positive relationship between buyer capital and asset purchases/value does not hold for deposit-taking institutions that had access to several government programs designed to improve their liquidity position during the crisis of 2008.

### Empirical Results and Scope
- Focus: effect of leverage on demand for assets and transaction values between financial institutions.
- Contextual note: the result is conditional on institution type; deposit-taking institutions with government program access during the 2008 crisis behave differently.
- Subjects and coverage: Agroindustries, Asset and liability management, Asset management, Asset valuation, Capital adequacy requirements, Economic sectors, Financial markets, Financial regulation and supervision, Stock markets.
- Keywords preserved from the source: Agroindustries; asset; asset liquidation; Asset management; Asset sales; Asset valuation; asset-market liquidity; assets ratio; balance sheets; buyer; buyer asset growth; buyer assets; buyer log; buyer market assets; capital; Capital adequacy requirements; deal value; financial intermediaries; Global; leverage; property assets; Stock markets; value; WP.

### Policy Implications and Interpretation
- Funding capacity of buyers (buyer capital) is a key determinant of both their propensity to purchase assets and the prices they are willing to pay.
- Government liquidity-support programs for deposit-taking institutions can alter the standard leverage–asset demand relationship observed among other financial institutions.
- Consideration of institution-type and access to public support is important when assessing market liquidity and pricing dynamics in stressed periods.

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_Source: https://www.imf.org/en/publications/wp/issues/2017/09/08/the-effect-of-leverage-on-asset-sales-between-financial-institutions-45207_