Redefining Financial Constraints: A Text-Based Analysis

55 Pages Posted: 8 Sep 2011 Last revised: 24 Oct 2014

Gerard Hoberg

University of Southern California - Marshall School of Business

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Date Written: October 23, 2014

Abstract

We score 10-K text to obtain annual measures of financial constraints, with separate measures for firms reporting equity and debt financing issues. Equity market constraints are associated with firms funding growth opportunities, have more severe consequences for the firm following large unexpected negative shocks, and are likely driven by informational asymmetries. A significant population of firms reporting equity market constraints also declare that they possess material undisclosed proprietary information. Constraints in the debt markets are distinct and are linked to covenant violations. Our measures outperform others used in the literature in predicting investment cuts following negative shocks.

Keywords: Financial Constraints, Research and Development, Equity Issuance, Asymmetric Information, Debt Overhang, Debt Issuance, Text-Based Analysis

JEL Classification: G31, G32, D92

Suggested Citation

Hoberg, Gerard and Maksimovic, Vojislav, Redefining Financial Constraints: A Text-Based Analysis (October 23, 2014). Available at SSRN: https://ssrn.com/abstract=1923467 or http://dx.doi.org/10.2139/ssrn.1923467

Gerard Hoberg (Contact Author)

University of Southern California - Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/vmax/

Paper statistics

Downloads
792
Rank
23,995
Abstract Views
2,941