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Financial Constraints and Stock Returns."

  • OWEN LAMONT
  • CHRISTOPHER POLK
  • JESUS SAA-REQUEJO

We test whether the impact of financial constraints on firm value is observable in stock returns. We form portfolios of firms based on observable characteristics related to financial constraints and test for common variation in stock returns. Financially constrained firms' stock returns move together over time, suggesting that constrained firms are subject to common shocks. Constrained firms have low average stock returns in our 1968-97 sample of growing manufacturing firms. We find no evidence that the relative performance of constrained firms reflects monetary policy, credit conditions, or business cycles. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Paper provided by Center for Research in Security Prices, Graduate School of Business, University of Chicago in its series CRSP working papers with number 451.

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Handle: RePEc:wop:chispw:451
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