Financing Constraints and the Amplification of Aggregate Downturns
Daniel R. Carvalho
USC Marshall School of Business
September 26, 2013
This paper shows that during industry downturns, firms experience significantly greater valuation losses when their industry peers’ long-term debt is largely 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 externalities are driven by the impact of industries’ lower asset prices on firms’ balance sheets.
Number of Pages in PDF File: 62
Keywords: financing constraints, externalities, amplification
JEL Classification: G32, G31, G30working papers series
Date posted: November 30, 2011 ; Last revised: October 28, 2013
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