Asset Pricing Implications of Firms' Financing Constraints

Preprint OPEN
Joao Gomes; Amir Yaron; Lu Zhang;
  • Subject: financing constraints; financing premium; production based asset pricing
    • jel: jel:G12 | jel:G32 | jel:E22

We incorporate costly external finance in a production based asset pricing model and investigate whether financing frictions are quantitatively important for pricing a cross-section of expected returns. We show that the common assumptions about the nature of the financi... View more
  • References (34)
    34 references, page 1 of 4

    1For example Chan, Chen, and Hsieh (1985), Chen, Roll, and Ross (1986) and Chan and Chen (1991) 2Berk, Green, and Naik (1999), Gomes, Kogan, and Zhang (2002), and Zhang (2002).

    3For example, Opler and Titman (1994), Asquith, Gertner, and Sharfstein (1994) and Lamont, Polk, and Saa´-Requejo (2001).

    4For example a recent strand of literature has focused instead on “quantity” constraints (e.g. Kehoe and Levine (1993), Kotcherlakotta (1996), Zhang (1997), Alvarez and Jermann (2000), Albuquerque and Hopenhayn (2001), Clementi and Hopenhayn (2001), Cooley, Quadrini, and Marimon (2001), and Almeida and Campello (2002)).

    5For example Bernanke and Gertler (1989), Carlstrom and Fuerst (1997), Kiyotaki and Moore (1997), Bernanke, Gertler, and Gilchrist (2000), and den Haan, Ramey, and Watson (1999).

    6Carlstrom and Fuerst (1997) also acknowledge that the ability of financing frictions models to replicate key business cycle properties leads to a procyclical financing premium.

    7E.g., Jensen and Meckling (1976), Myers and Majluf (1984), and Greenwald, Stiglitz, and Weiss (1984) 8If there is no possibility of default these costs will just equal the gross interest on the loan. If default is allowed, they may depend on the liquidation value of the firm.

    9E.g., Townsend (1979), Gale and Hellwig (1985), Williamson (1987), Bernanke and Gertler (1989), Carlstrom and Fuerst (1997), and Bernanke, Gertler, and Gilchrist (1996, 1999).

    10Source: Federal Reserve U.S. Flow of Funds Data.

    17E.g., Fama (1981), Chen, Roll, and Ross (1986), Keim and Stambaugh (1986), Chen (1991), Fama and French (1993), and Jagannathan and Wang (1996).

    18E.g., Harvey (1989), Bernanke (1990), and Stock and Watson (1989, 1999).

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