Redefining Financial Constraints: A Text-Based Analysis
University of Maryland - Department of Finance
University of Maryland - Robert H. Smith School of Business
August 16, 2013
We score 10-K text to obtain annual measures of financial constraints, with separate measures for firms assessing equity and debt issues. Equity market constraints have more severe consequences for the firm, relate to firms funding growth opportunities, and are likely driven by informational asymmetries. We find a significant population of firms that report equity market constraints and declare proprietary information risks. Constraints in the debt markets are distinct, relate to firms funding capital expenditures, 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: 62
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 16, 2013
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