Redefining Financial Constraints: A Text-Based Analysis
University of Maryland - Department of Finance
University of Maryland - Robert H. Smith School of Business
July 9, 2014
We score 10-K text to obtain annual measures of financial constraints, with separate measures for firms reporting equity and debt financing issues. Equity market constraints have more severe consequences for the firm following exogenous negative shocks, are associated with firms funding growth opportunities, and are likely driven by informational asymmetries. A significant population of firms reporting equity market constraints also declare that they possess material undisclosed proprietary information. Constraints in the debt markets are distinct, and are likely driven by factors relating to debt overhang. Our measures outperform others used in the literature in predicting investment cuts following exogenous shocks.
Number of Pages in PDF File: 59
Keywords: Financial Constraints, Research and Development, Equity Issuance, Asymmetric Information, Debt Overhang, Debt Issuance, Text-Based Analysis
JEL Classification: G31, G32, D92working papers series
Date posted: September 8, 2011 ; Last revised: August 1, 2014
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