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Redefining Financial Constraints: A Text-Based AnalysisChristopher BallMeta Heuristica, LLC Gerard HobergUniversity of Maryland - Department of Finance Vojislav MaksimovicUniversity of Maryland - Robert H. Smith School of Business February 7, 2012 Abstract: We score text in firms' 10-Ks to obtain for each firm an annual measure of investment delays due to financial constraints and separate measures of each firm's marginal constraints due to concerns with equity and debt financing.Contrary to the focus in the literature, we find that the key constraints are the financing of R&D expenditures rather than capital expenditures, and that the main friction firms face is raising equity capital to fund growth opportunities. We also find debt-market constrained firms more closely resemble distressed firms funding CAPX. Our measures predict investment cuts following the financial crisis better than other indices of financial constraints used in the literature. Since constraints are most binding within the populations of small and young rms these results point to the challenges that the financial system faces in funding innovation.
Number of Pages in PDF File: 62 Keywords: investment, financial constraint, equity, debt issuance, CAPX, R&D JEL Classification: G31, G32, G30 working papers seriesDate posted: March 17, 2012Suggested CitationContact Information
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