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Financing Constraints and the Amplification of Aggregate Downturns

57 Pages Posted: 30 Nov 2011 Last revised: 28 Feb 2014

Daniel R. Carvalho

Kelley School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 24, 2014


This paper shows that during industry downturns, firms experience significantly greater valuation losses when their industry peers’ long-term debt is 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 amplification effects are driven by the adverse impact that financially constrained firms have on the balance sheets of their industry peers.

Keywords: financing constraints, externalities, amplification

JEL Classification: G32, G31, G30

Suggested Citation

Carvalho, Daniel R., Financing Constraints and the Amplification of Aggregate Downturns (February 24, 2014). Available at SSRN: or

Daniel R. Carvalho (Contact Author)

Kelley School of Business ( email )

Bloomington, IN 47405
United States

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