Journal ArticleDOI
Using 10-K Text to Gauge Financial Constraints
TLDR
The authors parse 10-K disclosures filed with the U.S. Securities and Exchange Commission (SEC) using a unique lexicon based on constraining words and find that the frequency of these words exhibits very low correlation with traditional measures of financial constraints and predicts subsequent liquidity events, such as dividend omissions or increases, equity recycling, and underfunded pensions.Abstract:
Measuring the extent to which a firm is financially constrained is critical in assessing capital structure. Extant measures of financial constraints focus on macro firm characteristics such as age and size, variables highly correlated with other firm attributes. We parse 10-K disclosures filed with the U.S. Securities and Exchange Commission (SEC) using a unique lexicon based on constraining words. We find that the frequency of constraining words exhibits very low correlation with traditional measures of financial constraints and predicts subsequent liquidity events, such as dividend omissions or increases, equity recycling, and underfunded pensions, better than widely used financial constraint indexes.read more
Citations
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Journal ArticleDOI
Textual Analysis in Accounting and Finance: A Survey
Tim Loughran,Bill McDonald +1 more
TL;DR: In this paper, the authors describe the nuances of the textual analysis and some of the tripwires in implementation and highlight the contemporary textual analysis literature and highlight areas of future research.
Journal ArticleDOI
Textual Analysis in Accounting and Finance: A Survey
Tim Loughran,Bill McDonald +1 more
TL;DR: This survey describes the nuances of the method and, as users of textual analysis, some of the tripwires in implementation and reviews the contemporary textual analysis literature to highlight areas of future research.
Journal ArticleDOI
Mining corporate annual reports for intelligent detection of financial statement fraud A comparative study of machine learning methods
Petr Hájek,Roberto Henriques +1 more
TL;DR: It is found that ensemble methods outperformed the remaining methods in terms of true positive rate (fraudulent firms correctly classified as fraudulent) and Bayesian belief networks (BBN) performed best on non-f fraudulent firms (true negative rate).
Journal ArticleDOI
Taxes and Financial Constraints: Evidence from Linguistic Cues
Kelvin Law,Lillian F. Mills +1 more
TL;DR: In this paper, a measure of financial constraints based on firms' qualitative disclosures was used to find that financially constrained firms pursue more aggressive tax planning strategies as evidenced by: (1) higher current and future unrecognized tax benefits, (2) lower short-and long-run current-and future effective tax rates, (3) increase in tax haven usage for their material operations, and (4) higher proposed audit adjustments from the Internal Revenue Service.
Journal ArticleDOI
Looking for risk in words: a narrative approach to measuring the pricing implications of financial constraints
TL;DR: In this paper, the authors construct a novel measure of financial constraints using textual analysis and investigate its impact on stock returns, finding that constrained firms' returns move together and that the variation of a financial constraints factor cannot be explained by the Fama-French and momentum factors, earning an annualized risk adjusted excess return of 7%.
References
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Journal ArticleDOI
Common risk factors in the returns on stocks and bonds
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this article, the authors identify five common risk factors in the returns on stocks and bonds, including three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity.
Journal ArticleDOI
The Cross‐Section of Expected Stock Returns
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this paper, Bhandari et al. found that the relationship between market/3 and average return is flat, even when 3 is the only explanatory variable, and when the tests allow for variation in 3 that is unrelated to size.
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Corporate financing and investment decisions when firms have information that investors do not have
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Journal ArticleDOI
Industry costs of equity
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this paper, the authors show that standard errors of more than 3.0% per year are typical for both the CAPM and the three-factor model of Fama and French (1993), and these large standard errors are the result of uncertainty about true factor risk premiums and imprecise estimates of the loadings of industries on the risk factors.
Journal ArticleDOI
Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?
Steven N. Kaplan,Luigi Zingales +1 more
TL;DR: In this article, the authors investigated the relationship between financing constraints and investment-cash flow sensitivities by analyzing the firms identified by Fazzari, Hubbard, and Petersen as having unusually high investment cash flow sensitivity.
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