Whited Wu and SA indices for finacial constraint
Posted: 16 July 2015 08:51 PM   [ Ignore ]
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Hello all,

I am trying to categorize my data based on constrained and unconstrained firms and I am told to use WW and SA indices to rank firms based on their financial constraint. Usually people use the following equations to estimate these indices:

Whited-Wu (2006) index = -0.091*Cash flow + 0.062*Dividend dummy + 0.021*Long-term debt - 0.044* Size + 0.102* Industry sales growth - 0.035* Sales growth [USING QUARTERLY DATA]

SA (Hadlock and Pierce, 2010) index = (0.737* SA Size) + (0.043*SA Size^2) - (0.040*Age) [USING ANNUAL DATA]

My question is, since WW index is developed using the quarterly data, does it make sense to use it with Compustat annual data?

Regards

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Posted: 18 July 2015 08:20 AM   [ Ignore ]   [ # 1 ]
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hi Moh,

If you need the index only once a year (and not quarterly), why not use the Q4 numbers?

Best,

Joost

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