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

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

Murillo Campello

Cornell University; National Bureau of Economic Research (NBER)

Long Chen

Cheung Kong Graduate School of Business

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, 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 ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Long Chen (Contact Author)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

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