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Stock liquidity and excess leverage

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  • Chen, Zilin
  • Gao, Kang
  • Huang, Weiwei

Abstract

This study investigates whether and how stock liquidity affects firms’ leverage decisions. Results show that higher stock liquidity significantly reduces a firm's excess leverage by alleviating information asymmetry and amplifying the blockholders’ threats to exit. The results are robust when using various measures of stock liquidity and excess leverage, and when controlling for potential endogeneity problems.

Suggested Citation

  • Chen, Zilin & Gao, Kang & Huang, Weiwei, 2020. "Stock liquidity and excess leverage," Finance Research Letters, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:finlet:v:32:y:2020:i:c:s1544612319301667
    DOI: 10.1016/j.frl.2019.04.034
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    More about this item

    Keywords

    Stock liquidity; Excess leverage; Information asymmetry; Corporate governance;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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