Definition of Asset Stripping. Asset stripping refers to people selling off parts of a company to raise money. Asset stripping is often thought of in a negative way. For example, an under-performing company may be bought by private equity investors. They sell of the profitable aspects of a business and then close down the rest, usually resulting in unemployment.
Benefits of Asset Stripping
It is argued that asset stripping tends to occur to inefficient firms who are making bad use of existing resources. Therefore, private equity investors can enter and make a better use of existing capacity leading to greater efficiency in the economy. This is sometimes referred to as corporate restructuring.
Costs of Asset Stripping
- Firms cherry pick and often ignore potentially beneficial aspects of a business
- Job losses.