Asset Pricing Implications of Firms' Financing Constraints
- Topics:
- Financial Research
- Tags:
- Asset,
- Asset Pricing,
- Finance,
- Financial Accounting,
- Financing,
- Financing Friction,
- Investment
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Overview: The article 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 and 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.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.
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Format: PDF | Size: 424KB | Date: Dec 2002 | Pages: 58
