Financial Constraints and Stock Returns

Lamont, Owen A.; Polk, Christopher; Saá-Requejo, Jesús

doi:10.2139/ssrn.113336

Cited by 172 publications

(165 citation statements)

References 14 publications

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“…Jegadeesh and Titman (1993) proposed the "momentum strategy", that is, investors can earn abnormal returns via buying winner portfolios and selling loser portfolios. In addition to the three factors found by Fama and French (1993), Lamont et al (2001) found the existence of the so-called "financial constraints factor". Our findings regarding China-concept factors share common interest with Lamont et al (2001) in an analogous way.…”

Section: Introductionmentioning

confidence: 90%

“…In addition to the three factors found by Fama and French (1993), Lamont et al (2001) found the existence of the so-called "financial constraints factor". Our findings regarding China-concept factors share common interest with Lamont et al (2001) in an analogous way.…”

Section: Introductionmentioning

confidence: 90%

“…Brennan et al (1998) also provided consistent evidence supporting order imbalance to be another risk factor, other than size, value and market factors. Lamont et al (2001) found the existence of the so-called "financial constraints factor" after controlling for Fama and French's three factors and the momentum factor. They constructed various zero-cost portfolios that were long on financially constrained firms, short on less constrained firms and draw several implications in asset pricing.…”

Section: Relevant Literature Reviewmentioning

confidence: 99%

“…We employ a methodology similar to that used by Lamont et al (2001) in examining whether there is a financial-constraints factor. Listed firms in Taiwan stock markets for the period 1990-2004 are used to form portfolios of firms based on observable characteristics related to their real investments in China.…”

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confidence: 99%

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China-Concept Factor and Stock Returns in Taiwan

Yang

Lee

Chen³

et al. 2008

Rev. Pac. Basin Finan. Mark. Pol.

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Section: Introductionmentioning

confidence: 90%

Section: Introductionmentioning

confidence: 90%

Section: Relevant Literature Reviewmentioning

confidence: 99%

mentioning

confidence: 99%

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China-Concept Factor and Stock Returns in Taiwan

Yang

Lee

Chen³

et al. 2008

Rev. Pac. Basin Finan. Mark. Pol.

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“…First, almost all papers examining the abnormal returns of distressed firms control for ME and BE/ME, and often for momentum, either ARJ 27,2 directly in a regression setup using various factor models (Dichev, 1998;Lamont et al, 2001), or by double sorting (Griffin and Lemmon, 2002), as performed in this study. Second, several papers examine in more detail the interaction between distressed firms' returns and other anomalies.…”

Section: Related Literature and Limitations Of The Studymentioning

confidence: 99%

Firm characteristics, distress risk and average stock returns

Simlai

2014

Accounting Research Journal

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Purpose -This paper aims to examine the empirical relationship between firm-level characteristics and the variability of the average portfolio returns of distressed firms. The cross-sectional role of momentum in the market mispricing of distressed firms is evaluated. Distress risk associated with size and book-to-market ratio is also disentangled. Design/methodology/approach -All of NYSE, AMEX and NASDAQ stocks between January 1972 and December 2008 are used, and the individual and joint role of firm characteristics are studied in detail. Using a measure of distressed stocks based on Campbell, Hilscher and Szilagyi (CHS, 2008), new findings on how stock return anomalies are related to the interactions between firm characteristics and financial distress risk are provided. Findings -The findings show that the size and value effects are not due to distress risk. Also, contrary to the existing empirical evidence, momentum does not proxy for distress risk. Furthermore, in the cross-sectional analysis, momentum subsumes the effect of size risk, and book-to-market acts as an independent state variable. Research limitations/implications -The exposition of the paper is limited in many directions. To measure the extent of financial distress, only the model of CHS (2008) is used. As the level of distress is the key input in the paper, it would be interesting to use some other measure of distress, such as Z-score and O-score in the sample. Practical implications -Collectively, the pricing results in this paper help to foster a better understanding of the nature of distressed stocks, and the identification of distress risk premium. It will help scholars and investment professionals to make robust portfolio management decisions. Originality/value -Overall, this paper investigates an important research direction that can potentially shed new light on our understanding of the risk-return relationship of financially distressed stocks. The individual effect of momentum on the variability of the distressed firm's average returns is highlighted. A formal cross-sectional test of the relationship between distress risk and firm characteristics that include momentum is presented. None of them is quite known in the existing literature.

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Corporate environmental performance and financing constraints: An empirical study in the Chinese context

Liu

Chen

et al. 2020

Corp Soc Responsibility Env

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Between 2006 and 2017, 2,965 Chinese firms listed on the Shanghai/Shenzhen Stock Exchange have been studied to investigate whether better corporate environmental performance (CEP) leads to better access to capital and mitigates firms' financing constraints. It is hypothesized that better access to finance can be attributed to the increased government support due to enhanced firm political legitimacy and market legitimacy. Event studies find that the firms with better CEP suffer significantly lower finance constraints, and the evidence from the studies proves that firms' political legitimacy and market legitimacy are important in mitigating finance constraints. The results of the studies are confirmed by using two alternative measures of capital constraints and CEP, an instrumental variable approach, and a simultaneous equations approach.

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Financial Constraints and Stock Returns

Cited by 172 publications

References 14 publications

China-Concept Factor and Stock Returns in Taiwan

China-Concept Factor and Stock Returns in Taiwan

Firm characteristics, distress risk and average stock returns

Corporate environmental performance and financing constraints: An empirical study in the Chinese context

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