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Financing Constraints and the Amplification of Aggregate Downturns

Daniel R. Carvalho

USC Marshall School of Business

February 24, 2014

This paper shows that during industry downturns, firms experience significantly greater valuation losses when their industry peers’ long-term debt is maturing at the time of the shocks. Across a range of tests, the analysis addresses the endogenous determination of peer debt maturity structure. Overall, the evidence suggests that the negative externalities financially constrained firms impose on their industry peers can significantly amplify the effects of industry downturns. The evidence also provides support for the view that these amplification effects are driven by the adverse impact that financially constrained firms have on the balance sheets of their industry peers.

Number of Pages in PDF File: 57

Keywords: financing constraints, externalities, amplification

JEL Classification: G32, G31, G30

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Date posted: November 30, 2011 ; Last revised: February 28, 2014

Suggested Citation

Carvalho, Daniel R., Financing Constraints and the Amplification of Aggregate Downturns (February 24, 2014). Available at SSRN: http://ssrn.com/abstract=1965849 or http://dx.doi.org/10.2139/ssrn.1965849

Contact Information

Daniel R. Carvalho (Contact Author)
USC Marshall School of Business ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
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References:  38
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