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Commonality in liquidity and corporate default risk - Evidence from China

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  • Fu, Yumei
  • He, Feng
  • Li, Jintian
  • Zan, Bingyan

Abstract

We investigate the impact of commonality in liquidity on corporate default risk. Using the sample of Chinese A-share listed companies from 2009 to 2019, we find that commonality in liquidity significantly increases corporate default risk. This effect is achieved by increasing firm’s financial constraints and reducing the firm’s solvency. We further find state ownership, information disclosure, institutional investors’ shareholding, audit supervision, prefecture level marketization process and digital finance development can weaken the impact of commonality in liquidity on corporate default risk.

Suggested Citation

  • Fu, Yumei & He, Feng & Li, Jintian & Zan, Bingyan, 2024. "Commonality in liquidity and corporate default risk - Evidence from China," Research in International Business and Finance, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:riibaf:v:69:y:2024:i:c:s0275531924000734
    DOI: 10.1016/j.ribaf.2024.102280
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    More about this item

    Keywords

    commonality in liquidity; default risk; financing constraints; solvency;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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