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The effect of financing constraints on risk

Lindahl, Huidan and Paravisini, Daniel (2012) The effect of financing constraints on risk. Review of Finance, 17 (1). pp. 229-259. ISSN 1572-3097

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Identification Number: 10.1093/rof/rfr038

Abstract

We provide evidence on the causal link between financing constraints and the risk of corporate cash flows and returns. For identification, we compare public US firms in the same industry, location, and size quintile, but whose access to bank credit was differentially affected by WorldCom’s demise in 2002. A credit shortage induces a permanent increase in the volatility and skewness of operating cash flows and an increase in the correlation between firm stock and market returns. We document how firms’ cash, payout, and investment policies respond endogenously to mitigate the impact of constraints on risk.

Item Type: Article
Official URL: http://rof.oxfordjournals.org/
Additional Information: © 2012 The authors
Subjects: H Social Sciences > HG Finance
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 16 Apr 2012 12:36
Last Modified: 03 Jun 2014 13:58
URI: http://eprints.lse.ac.uk/id/eprint/43107

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