96 Pages Posted: 11 May 2014 Last revised: 6 Mar 2017
Date Written: March 6, 2017
We construct novel measures of financial constraints using textual analysis and investigate their impact on stock returns. Our different measures capture access to general external finance, equity markets, and debt markets. In all cases, constrained firms earn higher returns, which move together and cannot be explained by the Fama and French (2015) factor model. A trading strategy based on financial constraints is most profitable for large, liquid stocks. These results are strongest if we measure financial constraints via access to debt markets. We construct a financial constraints factor based on this measure, which earns an annualized risk-adjusted excess return of 6.5%.
Keywords: Financial constraints, textual analysis, market efficiency
JEL Classification: G14, G32
Suggested Citation: Suggested Citation
Buehlmaier, Matthias M. M. and Whited, Toni M., Are Financial Constraints Priced? Evidence from Textual Analysis (March 6, 2017). Simon School Working Paper No. FR 14-11. Available at SSRN: https://ssrn.com/abstract=2435116 or http://dx.doi.org/10.2139/ssrn.2435116