Economic theories of distress sales

Economic theories of distress sales explain why individuals or businesses sell assets quickly and often below market value during financial difficulties. These theories suggest that when facing urgent cash needs or mounting debts, sellers prioritize immediate liquidity over maximizing value, leading to hurried transactions. Factors like liquidity constraints, fear of insolvency, or sudden market shocks motivate distress sales. These sales can depress asset prices, create negative market spirals, and reflect underlying financial instability. Understanding these dynamics helps in analyzing market declines and the behavior of sellers under financial stress.