Financial Constraints and Stock Returns

Owen Lamont, Christopher Polk and Jesus Saa-Requejo

No 6210, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We test whether the impact of financial constraints on firm value is observable in asset" returns. We form portfolios of firms based on observable characteristics related to financial" constraints, and test for common covariation in the stock returns of these firms. Using several" different measures of financial constraints, we find that financially constrained firms' stock" returns move together over time. This financial constraint factor in stock returns is related to not well explained by, other empirically identified factors in asset returns. Constrained firms" have remarkably low returns in our sample period of 1968-1995, both unconditionally and in the" context of empirical asset pricing models. Financial constraint returns help explain returns" following initial public offerings and dividend omissions. We find only limited support for the" hypothesis that the relative performance of financially constrained firms reflects monetary" policy, credit conditions, and business cycles.

JEL-codes: G12 G32 (search for similar items in EconPapers)
Date: 1997-10
Note: AP ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Lamont, O., C. Polk and J. Saa-Requejo. "Financial Constraints And Stock Returns," Review of Financial Studies, 2001, v14(2,Jun), 529-554.

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