Stock liquidity and excess leverage

Chen, Zilin; Gao, Kang; Huang, Weiwei

doi:10.1016/j.frl.2019.04.034

Cited by 20 publications

(11 citation statements)

References 23 publications

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“…Stock trading can be a costly option because equity home biases and ambiguous information disclosure standards may promote adverse selection costs (Sercu & Vanpee, 2007). In this context, stock liquidity has a significant role in alleviating information asymmetry and shaping conservative leverage policies (Chen et al, 2020). Stock liquidity curtails firm default risk by improving stock price informational efficiency, and it also strengthens enterprise governance mechanisms (Brogaard et al, 2017;Chauhan et al, 2017).…”

Section: Capital Market and Trade Credit Policiesmentioning

confidence: 99%

Stock Liquidity and Corporate Trade Credit Strategies: Evidence From China

Shahzad

Liu

Luo

2021

Journal of Business Economics and Management

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This study investigates the nexus of stock liquidity and trade-credit policies in China from 2002 to 2017. The estimates are robust to alternative proxies, various fixed-effects, and the exogenous impact of Chinese split share structure reforms (SSSR) 2005-06 is investigated through the difference-in-difference analysis. The results validate that stock liquidity significantly impacts firms’ capacity to produce more trade credit supplies and less reliant on trade credit demand. The study applied SUEST analysis to investigate the effect of the Chinese institutional setting. The nexus of stock liquidity and trade credit strategies is substantial in state-owned enterprises. Additional analysis revealed that the said association is more visible to credit-constrained and equity-reliant enterprises. The policymakers should focus on market liquidity because it elevates firms’ capacity to mobilize capital through trade credit provisions. The micro aspect of this study suggests that stock liquidity allows managers to shape non-price competitive strategies and avoid excessive usage of trade credits.

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Section: Capital Market and Trade Credit Policiesmentioning

confidence: 99%

Stock Liquidity and Corporate Trade Credit Strategies: Evidence From China

Shahzad

Liu

Luo

2021

Journal of Business Economics and Management

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“…More recently, taking Chinese companies as a sample Chen et al (2020) in their study determine the association between stock liquidity and excess leverage. In their study, they exhibit an inverse association between stock liquidity and excess leverage because more liquid stocks weaken information asymmetry thereby leading to a negative (positive) association between liquidity (illiquidity) and leverage which is in line with Lesmond et al(2008).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Stock Liquidity and Capital Structure: Evidence from NSE Listed Top 100 Non-Finance Indian Firms

Dutta¹,

Sen²,

Mukherjee³

2022

OJC

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This study has investigated the influence of the stock liquidity (measured by Amihud’s illiquidity) of a company on its capital structure using the top 100 non-finance firms listed in the NSE from 2010-11 to 2019-20. Using the fixed-effect panel regression model, the study has established that illiquidity has a significant affirmative influence on the book and market leverage. Furthermore, the findings reveal that turnover representing the business size and return on assets have adverse associations with both book and market leverage. Moreover, asset tangibility bears a positive influence on book leverage. The results endorse the usefulness of the notion of Peckingorder in the context of Indian companies.

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“…They report that stock liquidity and bankruptcy risk are negatively related. In a recent study, Chen et al (2020) investigated the relationship between stock liquidity and excess leverage. Their findings suggest that a firm's stock liquidity decreases excess leverage by reducing information asymmetry.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…Increased stock liquidity may reduce the cost of equity and, hence, improve firm value and reduce leverage. The recent literature argue strong stock liquidity also increases a firm's tendency to hold cash (Chen et al, 2020). Furthermore, stock liquidity alleviates default risk by increasing price informativeness (Brogaard et al, 2017).…”

Section: Introductionmentioning

confidence: 99%

Hisse Senedi Likiditesi ile İşletmelerin Nakit Varlıkları Arasındaki Nedensellik İlişkisi

Kuzucu¹

2021

International Journal of Management Economics and Business

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Recent research documents evidence that stock liquidity and asset liquidity are associated. In the literature, some research finds the effect of asset liquidity on stock liquidity whereas some finds the effect of stock liquidity on corporate liquidity. This study examines the causality relationship between a firm's stock liquidity and its cash holdings. We use Granger causality for a dataset of listed non-financial companies. We find bidirectional causality between the two variables. The evidence shows that the causality from stock liquidity to cash holdings is weaker than the otherwise. Furthermore, our findings imply that investors are more reliant on firm's cash holdings for valuation of smaller firms. The results support that small firms have more information asymmetry.

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Stock liquidity and excess leverage

Cited by 20 publications

References 23 publications

Stock Liquidity and Corporate Trade Credit Strategies: Evidence From China

Stock Liquidity and Corporate Trade Credit Strategies: Evidence From China

Stock Liquidity and Capital Structure: Evidence from NSE Listed Top 100 Non-Finance Indian Firms

Hisse Senedi Likiditesi ile İşletmelerin Nakit Varlıkları Arasındaki Nedensellik İlişkisi

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