Financial Constraints and Stock Returns

Financial Constraints and Stock Returns We test whether the impact of financial constraints on firm value is observable in stock returns. We form portfolios of firms based on observable characteristics related to financial constraints and test for common variation in stock returns. Financially constrained firms’ stock returns move together over time, suggesting that constrained firms are subject to common shocks. Constrained firms have low average stock returns in our 1968–1997 sample of growing manufacturing firms. We find no evidence that the relative performance of constrained firms reflects monetary policy, credit conditions, or business cycles. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

Financial Constraints and Stock Returns

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Publisher
Oxford University Press
Copyright
Oxford University Press
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/14.2.529
Publisher site
See Article on Publisher Site

Abstract

We test whether the impact of financial constraints on firm value is observable in stock returns. We form portfolios of firms based on observable characteristics related to financial constraints and test for common variation in stock returns. Financially constrained firms’ stock returns move together over time, suggesting that constrained firms are subject to common shocks. Constrained firms have low average stock returns in our 1968–1997 sample of growing manufacturing firms. We find no evidence that the relative performance of constrained firms reflects monetary policy, credit conditions, or business cycles.

Journal

The Review of Financial StudiesOxford University Press

Published: Apr 21, 2001

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