Stock Liquidity and Default Risk

By Jonathan Brogaard, Dan Li, Ying Xia. 2017

355 citations recorded by the source corpus.

This paper examines the impact of stock liquidity on firm bankruptcy risk. Using the Securities and Exchange Commission decimalization regulation as a shock to stock liquidity, we establish that enhanced liquidity decreases default risk. Stocks with the highest default risk experience the largest improvements. We find two mechanisms through which stock liquidity reduces firm default risk: improving stock price informational efficiency and facilitating corporate governance by blockholders. Of the two mechanisms, the informational efficiency channel has higher explanatory power than the corporate governance channel.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/0b3761b58ee77f93575625760cdbfbd474487a36

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In Accounting

1. I. Abínzano
2. Ana González-Urteaga
3. S. Sánchez
4. L. Muga

In Finance

1. I. Abínzano
2. Ana González-Urteaga
3. S. Sánchez
4. L. Muga

Citations in the corpus

• Performance of default-risk measures: the sample matters (2020, methodology): “2 productivity and the supply chain (Brogaard et al., 2017), in addition to the impact on many parties associated with the defaulting firm (Lyandres and Zhdanov, 2013) and the social costs of economic downturns and recessions (Jones et al.”