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Asset Pricing Implications Of Firms Financing Constraints
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Book Synopsis Asset Pricing Implications of Firms' Financing Constraints by : Joao F. Gomes
Download or read book Asset Pricing Implications of Firms' Financing Constraints written by Joao F. Gomes and published by . This book was released on 2002 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We incorporate costly external finance in an investment-based asset pricing model and investigate whether financing frictions are quantitatively important for pricing a cross-section of expected returns. We show that common assumptions about the nature of the financing frictions are captured by a simple financing cost' function, equal to the product of the financing premium and the amount of external finance. This approach provides a tractable framework for empirical analysis. Using GMM, we estimate a pricing kernel that incorporates the effects of financing constraints on investment behavior. The key ingredients in this pricing kernel depend not only on fundamentals', such as profits and investment, but also on the financing variables, such as default premium and the amount of external financing. Our findings, however, suggest that the role played by financing frictions is fairly negligible, unless the premium on external funds is procyclical, a property not evident in the data and not satisfied by most models of costly external finance.
Book Synopsis Asset Pricing Implications of Firms' Financing Constraints by :
Download or read book Asset Pricing Implications of Firms' Financing Constraints written by and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Pricing Implications of Firms' Financing Constraints by : Joao F. Gomes
Download or read book Asset Pricing Implications of Firms' Financing Constraints written by Joao F. Gomes and published by . This book was released on 2011 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a production-based asset pricing model to investigate whether financing constraints are quantitatively important for the cross-section of returns. Specifically, we use GMM to explore the stochastic Euler equation imposed on returns by optimal investment. Our methods can identify the impact of financial frictions on the stochastic discount factor with cyclical variations in cost of external funds. We find that financing frictions provide a common factor that improves the pricing of cross-sectional returns. Moreover, the shadow cost of external funds exhibits strong procyclical variation, so that financial frictions are more important in relatively good economic conditions. (JEL E22, E44, G12).
Book Synopsis Asset Pricing Implications of Firms' Financial Constraints by : Joao Gomes
Download or read book Asset Pricing Implications of Firms' Financial Constraints written by Joao Gomes and published by . This book was released on 2002 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Pricing for Dynamic Economies by : Sumru Altug
Download or read book Asset Pricing for Dynamic Economies written by Sumru Altug and published by Cambridge University Press. This book was released on 2008-09-11 with total page 702 pages. Available in PDF, EPUB and Kindle. Book excerpt: This introduction to general equilibrium modelling takes an integrated approach to the analysis of macroeconomics and finance. It provides students, practitioners, and policymakers with an easily accessible set of tools that can be used to analyze a wide range of economic phenomena. Key features: • Provides a consistent framework for understanding dynamic economic models • Introduces key concepts in finance in a discrete time setting • Develops simple recursive approach for analyzing a variety of problems in a dynamic, stochastic environment • Sequentially builds up the analysis of consumption, production, and investment models to study their implications for allocations and asset prices • Reviews business cycle analysis and the business cycle implications of monetary and international models • Covers latest research on asset pricing in overlapping generations models and on models with borrowing constraints and transaction costs • Includes end-of-chapter exercises allowing readers to monitor their understanding of each topic Online resources are available at www.cambridge.org/altug_labadie
Book Synopsis Costly External Equity by : Dongmei Li
Download or read book Costly External Equity written by Dongmei Li and published by . This book was released on 2008 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that the value, net stock issues, investment, and asset growth anomalies tend to be stronger in financially more constrained firms than in less constrained firms. This effect of financial constraints is distinct from that of financial distress on anomalies. Intuitively, costly external finance makes marginal costs of investment more sensitive to investment in more constrained firms, giving rise to a stronger negative correlation between investment and the discount rate.
Book Synopsis Essays on the Asset Pricing Anomalies by : Kyungyeon (Rachel) Koh
Download or read book Essays on the Asset Pricing Anomalies written by Kyungyeon (Rachel) Koh and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation aims to shed light on the source of the asset pricing anomalies by investigating behavioral and rational explanations. The first essay, "Asset Efficiency and the Asset Growth Anomaly," examines the source of the asset growth anomaly. I present findings that the anomaly is driven by inefficient firms, which support the behavioral hypothesis that investors on average underreact to some firms' overexpansion. Firms with past records of high asset efficiency relative to their industry peers do not suffer lower stock performance following high growth. The overarching impact of asset efficiency shows that firm skill is highly relevant, for effective corporate strategy should balance growth with capability to maintain and profit from that growth. The next chapter, "Do Financing Costs Matter for the Investment Anomalies?" shows supporting evidence for a shared role of behavioral and rational elements in explaining the anomalies. It comprehensively evaluates whether firms' financing constraints explain the investment anomalies, including the asset growth anomaly, incorporating advanced proxies for financing constraints. The main contribution is to demonstrate that both mispricing and investment-friction channels reinforce each other in explaining the negative investment-return relation. The third chapter, "Style Investing: New Evidence from Mutual Fund Flows," empirically validates the style-investing behavior of mutual fund investors and explores the pricing implication for stocks by utilizing mutual fund flows. Barberis and Shleifer (2003) initially explore the idea of style investing with an assumption that investors choose styles based on the recent past style performance. I find evidence that mutual fund investors allocate to winner styles and withdraw from loser styles based on the recent past style performance, consistently with Barbaris and Shleifer's assumption. Next, I examine the pricing implications of the mutual fund flows by style. The evidence shows the Granger-causality of the style flows and the underlying stock returns in both directions. Neither the rationalists nor the behavioralists have been able to comprehensively explain all of financial market dynamics. This thesis urges the current asset pricing research to stay open-minded to consider various possibilities and viewpoints and be prepared to come up with narratives not confined to a single set of theory.
Book Synopsis Financial Decisions and Markets by : John Y. Campbell
Download or read book Financial Decisions and Markets written by John Y. Campbell and published by Princeton University Press. This book was released on 2017-10-31 with total page 480 pages. Available in PDF, EPUB and Kindle. Book excerpt: From the field's leading authority, the most authoritative and comprehensive advanced-level textbook on asset pricing In Financial Decisions and Markets, John Campbell, one of the field’s most respected authorities, provides a broad graduate-level overview of asset pricing. He introduces students to leading theories of portfolio choice, their implications for asset prices, and empirical patterns of risk and return in financial markets. Campbell emphasizes the interplay of theory and evidence, as theorists respond to empirical puzzles by developing models with new testable implications. The book shows how models make predictions not only about asset prices but also about investors’ financial positions, and how they often draw on insights from behavioral economics. After a careful introduction to single-period models, Campbell develops multiperiod models with time-varying discount rates, reviews the leading approaches to consumption-based asset pricing, and integrates the study of equities and fixed-income securities. He discusses models with heterogeneous agents who use financial markets to share their risks, but also may speculate against one another on the basis of different beliefs or private information. Campbell takes a broad view of the field, linking asset pricing to related areas, including financial econometrics, household finance, and macroeconomics. The textbook works in discrete time throughout, and does not require stochastic calculus. Problems are provided at the end of each chapter to challenge students to develop their understanding of the main issues in financial economics. The most comprehensive and balanced textbook on asset pricing available, Financial Decisions and Markets is an essential resource for all graduate students and practitioners in finance and related fields. Integrated treatment of asset pricing theory and empirical evidence Emphasis on investors’ decisions Broad view linking the field to financial econometrics, household finance, and macroeconomics Topics treated in discrete time, with no requirement for stochastic calculus Forthcoming solutions manual for problems available to professors
Book Synopsis Financing Constraints and Corporate Investment by : Steven M. Fazzari
Download or read book Financing Constraints and Corporate Investment written by Steven M. Fazzari and published by . This book was released on 1987 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most empirical models of investment rely on the assumption that firms are able to respond to prices set in centralized securities markets (through the "cost of capital" or "q"). An alternative approach emphasizes the importance of cash flow as a determinant of investment spending, because of a "financing hierarchy, " in which internal finance has important cost advantages over external finance. We build on recent research concerning imperfections in markets for equity and debt. This work suggests that some firms do not have sufficient access to external capital markets to enable them to respond to changes in the cost of capital, asset prices, or tax-based investment incentives. To the extent that firms are constrained in their ability to raise funds externally, investment spending may be sensitive to the availability of internal finance. That is, investment may display "excess sensitivity" to movements in cash flow. In this paper, we work within the q theory of investment, and examine the importance of a financing hierarchy created by capital-market imperfections. Using panel data on individual manufacturing firms, we compare the investment behavior of rapidly growing firms that exhaust all of their internal finance with that of mature firms paying dividends. We find that q values remain very high for significant periods of time for firms paying no dividends, relative to those for mature firms. We also find that investment is more sensitive to cash flow for the group of firms that our model implies is most likely to face external finance constraints. These results are consistent with the augmented model we propose, which takes into account different financing regimes for different groups of firms. Some extensions and implications for public policy are discussed at the end
Book Synopsis Financial Constraints and Stock Returns by : Owen A. Lamont
Download or read book Financial Constraints and Stock Returns written by Owen A. Lamont and published by . This book was released on 1997 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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
Book Synopsis Essays on Asset Pricing by : Bosung Jang
Download or read book Essays on Asset Pricing written by Bosung Jang and published by . This book was released on 2017 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies how asset prices are related to various macroeconomic and financial factors. In the first chapter, I examine the influence of external financing costs on growth and asset prices. Using U.S. high-tech firm data and the aggregate financing cost measure of Eisfeldt and Muir (2016), I find that an increase in financing cost can have negative effects on R&D by reducing equity finance. This result suggests that financing cost can have substantial impacts on long-run productivity through the R&D channel. Motivated by this idea, I construct a general equilibrium model where financing costs affect innovation activities and future productivity. My model endogenously generates long-run risk and matches key features of macroeconomic and asset price data. The model produces a sizable equity premium, doing a good job of matching macro moments in the data. Furthermore, a large risk premium of R&D-intensive stocks is justified in the model as in the data. In addition, as a higher financing cost forecasts lower productivity growth in the model, this prediction is supported by empirical evidence. In the second chapter, I investigate whether heterogeneity between domestic and foreign households can help explain the cross-section of stock returns. For this analysis, I apply Yogo’s (2006) durable consumption model to a two-country setting using Korean stock market data. In Korea, U.S. investors have been a dominant foreign investor group, given that the total share of foreigners is considerably large. By incorporating the stochastic discount factor of the U.S. into the model, I find that it plays a significant role in pricing assets. In particular, our model is successful in accounting for the expected excess return of relatively high book-to-market equity groups, producing lower pricing errors than the Fama-French 3 factor model. In the third chapter, I study the effects of debt maturity choice on stock returns and financial structure. I construct a model where firms can issue both short-term and long-term bonds, subject to collateral constraints. I also assume that, when they run financial deficits, firms use equity finance paying issuance costs. The model performs well in matching empirical facts about stock returns and the financial structure of firms. In addition, the model provides an interesting implication that firms substitute between leverage and maturity. In the literature, theoretical explanations for the substitution relationship have been mainly based on conflicts between stakeholders. Without hinging on the contract-theoretic approach, my model replicates the theoretical prediction.
Book Synopsis Dynamical Corporate Finance by : Umberto Sagliaschi
Download or read book Dynamical Corporate Finance written by Umberto Sagliaschi and published by Springer Nature. This book was released on 2021-07-29 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt: The way in which leverage and its expected dynamics impact on firm valuation is very different from what is assumed by the traditional static capital structure framework. Recent work that allows the firm to restructure its debt over time proves to be able to explain much of the observed cross-sectional and time-series variation in leverage, while static capital structure predictions do not. The purpose of this book is to re-characterize the firm’s valuation process within a dynamical capital structure environment, by drawing on a vast body of recent and more traditional theoretical insights and empirical findings on firm evaluation, also including asset pricing literature, offering a new setting in which practitioners and researchers are provided with new tools to anticipate changes in capital structure and setting prices for firm’s debt and equity accordingly.
Book Synopsis Financing Constraints and Corporate Investment by : Steven M. Fazzari
Download or read book Financing Constraints and Corporate Investment written by Steven M. Fazzari and published by . This book was released on 2010 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most empirical models of investment rely on the assumption that firms are able to respond to prices set in centralized securities markets (through the quot;cost of capitalquot; or quot;qquot;). An alternative approach emphasizes the importance of cash flow as a determinant of investment spending, because of a quot;financing hierarchy,quot; in which internal finance has important cost advantages over external finance. We build on recent research concerning imperfections in markets for equity and debt. This work suggests that some firms do not have sufficient access to external capital markets to enable them to respond to changes in the cost of capital, asset prices, or tax-based investment incentives. To the extent that firms are constrained in their ability to raise funds externally, investment spending may be sensitive to the availability of internal finance. That is, investment may display quot;excess sensitivityquot; to movements in cash flow. In this paper, we work within the q theory of investment, and examine the importance of a financing hierarchy created by capital-market imperfections. Using panel data on individual manufacturing firms, we compare the investment behavior of rapidly growing firms that exhaust all of their internal finance with that of mature firms paying dividends. We find that q values remain very high for significant periods of time for firms paying no dividends, relative to those for mature firms. We also find that investment is more sensitive to cash flow for the group of firms that our model implies is most likely to face external finance constraints. These results are consistent with the augmented model we propose, which takes into account different financing regimes for different groups of firms. Some extensions and implications for public policy are discussed at the end.
Book Synopsis Essays on Corporate Finance, Monetary Policy and Asset Pricing on London Stock Exchange by : Nikolaos Balafas
Download or read book Essays on Corporate Finance, Monetary Policy and Asset Pricing on London Stock Exchange written by Nikolaos Balafas and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Liquidity Constraints in Production Based Asset Pricing Models by : William A. Brock
Download or read book Liquidity Constraints in Production Based Asset Pricing Models written by William A. Brock and published by . This book was released on 1989 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores the time series implications of introducing credit constraints into a production based asset pricing model. Simulations are performed choosing parameter values which generate reasonable values for aggregate fluctuations. These results show that mean reversion in simulated returns series, measured by variance ration tests, is enhanced with the introduction of binding credit constraints. Without these constraints there is very little evidence of mean reversion. This is consistent with financial market data where the weak evidence for mean reversion is stronger in small firm returns. Other tests are run on the simulated series including checking the standard deviation, skewness, and kurtosis. These other tests do not show strong differences between the constrained and unconstrained firms in the model.
Book Synopsis Financial Constraints and Stock Returns by : Owen A. Lamont
Download or read book Financial Constraints and Stock Returns written by Owen A. Lamont and published by . This book was released on 2008 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We test whether the impact of financial constraints on firm value is observable in assetquot; returns. We form portfolios of firms based on observable characteristics related to financialquot; constraints, and test for common covariation in the stock returns of these firms. Using severalquot; different measures of financial constraints, we find that financially constrained firms' stockquot; 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 firmsquot; have remarkably low returns in our sample period of 1968-1995, both unconditionally and in thequot; context of empirical asset pricing models. Financial constraint returns help explain returnsquot; following initial public offerings and dividend omissions. We find only limited support for thequot; hypothesis that the relative performance of financially constrained firms reflects monetaryquot; policy, credit conditions, and business cycles.
Book Synopsis Determinants of Innovative Behaviour by : Cees van Beers
Download or read book Determinants of Innovative Behaviour written by Cees van Beers and published by Springer. This book was released on 2008-09-10 with total page 321 pages. Available in PDF, EPUB and Kindle. Book excerpt: A rich overview of current research on determinants of innovative behaviour. It is a unique work as it illuminates these from different perspectives such as, economics, management and psychology. Using several methods of analysis, it shows what specific determinants are predominant in explaining firm performance on innovation.
