Stock Comovement and Financial Flexibility

Teng Huang; Anil Kumar; Stefano Sacchetto; Carles Vergara-Alert

doi:10.1017/S0022109022001338

Stock Comovement and Financial Flexibility

Teng Huang, Anil Kumar, Stefano Sacchetto, Carles Vergara-Alert

Institut for Økonomi

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning › peer review

1 Citationer (Scopus)

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Abstract

We develop a dynamic model of corporate investment and financing, in which shocks to the value of collateralizable assets generate variation in firms' debt capacity. We show that the degree of similarity among firms' financial flexibility forecasts cross-sectional variation in return correlation. We test the implications of the model with firm-level data in two empirical analyses using i) an instrumental variable approach based on shocks to the value of collateralizable corporate assets and ii) the outbreak of the COVID-19 crisis as an event study. We find that firms in the same percentile of the cross-sectional distribution of financial flexibility have 62% higher correlation in stock-return residuals than firms 50 percentiles apart.

Originalsprog	Engelsk
Tidsskrift	Journal of Financial and Quantitative Analysis
Vol/bind	59
Nummer	3
Sider (fra-til)	1141-1184
Antal sider	44
ISSN	0022-1090
DOI	https://doi.org/10.1017/S0022109022001338
Status	Udgivet - maj 2024

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10.1017/S0022109022001338Licens: CC BY

stock-comovement-and-financial-flexibilityForlagets udgivne version, 825 KBLicens: CC BY

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Stock Comovement and Financial Flexibility

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