The Effect of Financial Constraints on Stock Returns in Korea

2017 ◽  
Vol 30 (4) ◽  
pp. 395-432
Author(s):  
Byeung-Joo Lee ◽  
◽  
Dongcheol Kim
Keyword(s):  
Stock Returns ◽  
Financial Constraints

Financial Constraints, Stock Returns and R&D in Indian Stock Market

2021 ◽  
pp. 097226292098839
Author(s):  
Pankaj Sinha ◽  
Priya Sawaliya
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Financial Constraints ◽  
Fixed Effect Model ◽  
Quantitative Information ◽  
Common Shocks ◽  
External Finance ◽  
Negative Effect ◽  
Security Returns ◽  
Indian Stock Market

When the accessibility of external finance prohibits a firm from taking the optimum decision related to investment, that firm is called financially constrained. By applying the methodology of Kaplan and Zingales (1997) and Lamont et al. (2001), the current study has created a construct to gauge the level of financial constraints (FC) of the companies which emanate from quantitative information. The study explores whether FC factor is present in the Indian stock market and explores whether the security returns of those firms that are financially constrained move in tandem. The study also attempts to establish the association between security returns and R&D of financially constrained firms. On a sample of 63 R&D reporting companies of S&P BSE 500, traded over the period March 2008 to February 2019, the study used the Fama–French methodology, fixed effect model and the ordered logistic regression. The study finds that firms that are highly constrained earn more returns than low constrained firms. Second, the security returns of firms that are financially constrained move in tandem because these firms are affected by common shocks. This suggests that the FC factor exists in the Indian stock market. Finally, when R&D interacts with the level of FC, then this interaction effect has a negative effect on returns.

Do Financially Constrained Firms Earn Higher Returns than the Unconstrained Firms? A Comprehensive Evidence from Pakistan Stock Exchange

2020 ◽  
Keyword(s):  
Time Series ◽  
Asset Pricing ◽  
Capital Structure ◽  
Stock Returns ◽  
Financial Constraints ◽  
Stock Exchange ◽  
Cash Flows ◽  
Total Asset ◽  
Cash Holding ◽  
The Relationship

This paper examines the relationship between financial constraints and the stock returns explaining the pricing of stock through financially constrained and unconstrained firms in Pakistan. Three proxies; total assets, tangible to total assets and cash holding to total assets ratios) have been used for financial constraints and the study tried to investigate that either the investors are compensated for taking the extra risk or not in Pakistan Stock Exchange (PSX). We find that the financially constrained firms don’t earn higher returns when their capital structure is heavy with liquid assets and their cash flows are more than the unconstrained firms in PSX. Moreover, the time series results showed that the risk-adjusted returns of the most constrained firms give the mix and somewhat negative and significant and insignificant results for the Pakistani firms listed in PSX sorted based on tangible to total assets and Cash holding to total asset ratios. Keywords: Asset Pricing, Financial constraints, risk-adjusted performance of portfolios

The Real Side of the High-Volume Return Premium

2021 ◽  
Author(s):  
Doron Israeli ◽  
Ron Kaniel ◽  
Suhas A. Sridharan
Keyword(s):  
Stock Returns ◽  
Trading Volume ◽  
Financial Constraints ◽  
High Volume ◽  
Cash Flows ◽  
Positive Relation ◽  
Trading Activity ◽  
Earnings Information ◽  
Prior Literature ◽  
Corporate Actions

Prior literature demonstrates that increased trading activity of a firm’s stock is associated with abnormal future stock returns (the high-volume return premium) and interprets this phenomenon as evidence that increased visibility generates reductions in cost of capital. Motivated by this interpretation, we investigate whether increased trading activity entails changes in real corporate actions. We document a positive relation between abnormal trading volume, future investment expenditures, and financing cash flows. This positive relation is not subsumed by the arrival of investment-related news or other corporate disclosures or by subsequent earnings information and is concentrated among firms with high financial constraints and firms with lower levels of investor recognition. This paper was accepted by David Simchi-Levi, finance.

Association between the availability of financial resources and working capital management with stock surplus returns in Iran

2019 ◽  
Vol 14 (2) ◽  
pp. 343-361 ◽  
Author(s):  
Mahdi Salehi ◽  
Nadia Mahdavi ◽  
Saeed Zarif Agahi Dari ◽  
Hossein Tarighi
Keyword(s):  
Stock Returns ◽  
Firm Value ◽  
Financial Constraints ◽  
Cash Holdings ◽  
Financial Resources ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
The Relationship

Purpose The purpose of this paper is to investigate the relationship between access to financial resources, working capital with surplus stock returns and value of the company in Iran. Design/methodology/approach The study population consists of 728 observations and 91 firms listed on the Tehran stock exchange during an eight-year period between 2009 and 2016. The statistical model used in this study is a multivariate regression model; further, the statistical technique used to test the hypotheses is panel data. Findings The results saw a negative and significant linkage between changes in cash and stock’ excess returns, whereas no meaningful association between changes in working capital and stock surplus returns was seen. In other words, an Iranian rial (Iran’s currency) invested in working capital worth less on average than a rial held in cash. Furthermore, the authors realized that in an inflationary economy, firms mainly pay more dividends so as to illustrate better their financial position and also to attract more investors’ trust. The results also indicated that the final value of working capital in the companies that are faced with financial constraints is more than companies that are not faced with financial constraints. Subsequently, after the elimination of the effects of inflation on stock returns, it was found there is not any significant association between the stock’s real return and firm value. Practical implications This is one of the most comprehensive research works in Iran that simultaneously surveys the impacts of access to finance and working capital on firm value. This research warns corporate managers to pay more attention to the importance of keeping cash to finance and manage working capital for profitability and sustainability of their company’s operations. Surely, by understanding the relationship between cash holdings, working capital management and stock surplus return, investors will be able to make appropriate decisions about the optimal choice of funds. Originality/value What really will fascinate other scholars about this paper is the time period of the study because there were unprecedented sanctions against Iran market and many manufacturing industries were in financial strain. Without hesitation, the paper will make aware investors and stakeholders of this fact that cash holdings will be a good way in reducing the corporate financial problems in emerging markets, particularly those markets face financial sanctions like Iran.

China-Concept Factor and Stock Returns in Taiwan

2008 ◽  
Vol 11 (01) ◽  
pp. 99-122 ◽  
Author(s):  
Chau-Chen Yang ◽  
Cheng-Few Lee ◽  
Yi-Jung Chen ◽  
Ling Hu
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Markets ◽  
Financial Constraints ◽  
Listed Firms ◽  
Common Variation ◽  
Common Shocks ◽  
Over Time

This study investigates whether there is a "China-concept factor", a common variation of stock returns, for firms that are listed in Taiwan stock markets and have real investments in China. 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. We find that firms investing heavily in China have stock returns moving together over time, which suggests that firms investing in China are subject to common shocks. Firms investing heavily in China are found to exhibit higher average stock returns. There exists a China-concept factor for firms listed in Taiwan stock market and have real investments in China.

Cash flow volatility-return relation and financial constraints: international evidence

2017 ◽  
Vol 43 (3) ◽  
pp. 354-378 ◽  
Author(s):  
Darshana D. Palkar
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Financial Constraints ◽  
Negative Impact ◽  
Content Type ◽  
Developed Markets ◽  
Specific Factors ◽  
Cash Flow Volatility ◽  
Country Specific

Purpose The purpose of this paper is to examine whether cash flow volatility (CFV) has a negative impact on future stock returns, and whether the CFV-return relation is different among financially constrained and unconstrained firms, by using a broad sample of 21 developed markets. Design/methodology/approach The study conducts portfolio analysis to test the CFV effect on returns. Risk-adjusted returns (alphas) are computed with respect to country-specific factors based on market, size, book-to-market, and momentum. Findings The strategy of buying stocks with low CFV while shorting stocks with high CFV delivers significant alphas in more than three-fourths of the markets. The alphas for the long-short portfolio based on CFV are positive and statistically significant in more than 70 percent of the countries among financially constrained firms, largely driven by the underperformance of high-CFV stocks. In comparison, the CFV effect is observed in less than 45 percent of the countries among financially unconstrained firms, and is largely driven by the outperformance of low-CFV stocks. Originality/value This study extends prior findings by providing evidence of a negative relation between CFV and stock returns in a majority of global equity markets. The evidence also suggests an important role of financial constraints in explaining this relation.

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