Financial Constraints and Stock Returns / Owen Lamont, Christopher Polk, Jesus Saa-Requejo.

By:

Lamont, Owen

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w6210.Publication details: Cambridge, Mass. National Bureau of Economic Research 1997.Description: 1 online resource: illustrations (black and white)Subject(s):

G12 - Asset Pricing • Trading Volume • Bond Interest Rates
G32 - Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill

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Abstract: We test whether the impact of financial constraints on firm value is observable in asset" returns. We form portfolios of firms based on observable characteristics related to financial" constraints, and test for common covariation in the stock returns of these firms. Using several" different measures of financial constraints, we find that financially constrained firms' stock" returns move together over time. This financial constraint factor in stock returns is related to not well explained by, other empirically identified factors in asset returns. Constrained firms" have remarkably low returns in our sample period of 1968-1995, both unconditionally and in the" context of empirical asset pricing models. Financial constraint returns help explain returns" following initial public offerings and dividend omissions. We find only limited support for the" hypothesis that the relative performance of financially constrained firms reflects monetary" policy, credit conditions, and business cycles.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w6210 (Browse shelf(Opens below))	Not For Loan

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October 1997.

We test whether the impact of financial constraints on firm value is observable in asset" returns. We form portfolios of firms based on observable characteristics related to financial" constraints, and test for common covariation in the stock returns of these firms. Using several" different measures of financial constraints, we find that financially constrained firms' stock" returns move together over time. This financial constraint factor in stock returns is related to not well explained by, other empirically identified factors in asset returns. Constrained firms" have remarkably low returns in our sample period of 1968-1995, both unconditionally and in the" context of empirical asset pricing models. Financial constraint returns help explain returns" following initial public offerings and dividend omissions. We find only limited support for the" hypothesis that the relative performance of financially constrained firms reflects monetary" policy, credit conditions, and business cycles.