Redefining Financial Constraints: A Text-Based Analysis
University of Southern California - Marshall School of Business
University of Maryland - Robert H. Smith School of Business
October 23, 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 are associated with firms funding growth opportunities, have more severe consequences for the firm following large unexpected negative shocks, 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 linked to covenant violations. Our measures outperform others used in the literature in predicting investment cuts following negative shocks.
Number of Pages in PDF File: 55
Keywords: Financial Constraints, Research and Development, Equity Issuance, Asymmetric Information, Debt Overhang, Debt Issuance, Text-Based Analysis
JEL Classification: G31, G32, D92
Date posted: September 8, 2011 ; Last revised: October 24, 2014
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