Are Financial Constraints Priced? Evidence from Firm Fundamentals and Stock Returns

22 Pages Posted: 19 Mar 2005 Last revised: 18 Feb 2010

See all articles by Murillo Campello

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Long Chen

Cheung Kong Graduate School of Business; Luohan Academy

Date Written: February 10, 2010

Abstract

Using comprehensive firm- and aggregate-level data, this paper studies the real and financial implications of capital market imperfections. We first examine whether financially constrained firms' business fundamentals (capital spending and operating earnings) are more sensitive to macroeconomic movements than unconstrained firms' fundamentals. We then examine whether financial constraint "return factors" respond to macroeconomic shocks in tandem with the responses from business fundamentals. The evidence in this paper points to financial constraints affecting both fundamental quantities and asset returns.

Keywords: Financial constraints, equity returns, credit spreads, systematic risk, macroeconomic shocks

JEL Classification: G12

Suggested Citation

Campello, Murillo and Chen, Long and Chen, Long, Are Financial Constraints Priced? Evidence from Firm Fundamentals and Stock Returns (February 10, 2010). Journal of Money, Credit, and Banking, Forthcoming, Available at SSRN: https://ssrn.com/abstract=686426

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

114 East Avenue
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HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138

Long Chen (Contact Author)

Luohan Academy ( email )

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Xihu District
Hangzhou, Zhejiang 310013
China
+86-0571-2688-8888-75520 (Phone)

Cheung Kong Graduate School of Business ( email )

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One East Chang An Avenue
Beijing, 100738
China

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