Abstract

http://ssrn.com/abstract=2331544
 


 



Using 10-K Text to Gauge Financial Constraints


Andriy Bodnaruk


University of Notre Dame - Mendoza College of Business

Tim Loughran


University of Notre Dame

Bill McDonald


University of Notre Dame - Mendoza College of Business - Department of Finance

August 25, 2015

Forthcoming in the Journal of Financial and Quantitative Analysis

Abstract:     
Measuring the extent to which a firm is financially constrained is critical in assessing capital structure. Extant measures of financial constraints focus on macro firm characteristics such as age and size – variables highly correlated with other firm attributes. We parse 10-K disclosures filed with the SEC using a unique lexicon based on constraining words. We find that the frequency of constraining words exhibits very low correlation with traditional measures of financial constraints and predicts subsequent liquidity events – like dividend omissions or increases, equity recycling, and underfunded pensions – better than widely-used financial constraint indexes.

Number of Pages in PDF File: 43

Keywords: Financial constraints; textual analysis; dividend omissions; equity recycling; underfunded pensions

JEL Classification: G31, G32, D92


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Date posted: September 28, 2013 ; Last revised: August 27, 2015

Suggested Citation

Bodnaruk, Andriy and Loughran, Tim and McDonald, Bill, Using 10-K Text to Gauge Financial Constraints (August 25, 2015). Forthcoming in the Journal of Financial and Quantitative Analysis. Available at SSRN: http://ssrn.com/abstract=2331544 or http://dx.doi.org/10.2139/ssrn.2331544

Contact Information

Andriy Bodnaruk
University of Notre Dame - Mendoza College of Business ( email )
Notre Dame, IN 46556-5646
United States
Tim Loughran (Contact Author)
University of Notre Dame ( email )
Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)
Bill McDonald
University of Notre Dame - Mendoza College of Business - Department of Finance ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
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