RIS ID

134082

Publication Details

Nadarajah, S., Ali, S., Liu, B. & Huang, A. (2018). Stock Liquidity and Default Risk around the World. 27th Annual Meeting of the European Financial Management Association (pp. 1-54).

Abstract

We investigate the effect of stock liquidity on default risk using a large dataset of 4,381 non-financial firms across 46 countries for 2004-2015. We find a negative effect of stock liquidity on default risk,even in various natural-experimental settings with an exogenous negative (i.e., the Global Financial Crisis) and positive (i.e., removal of broker identifiers in Australia and non-tradable share reform in China) shocks to liquidity. Further, we find that the negative effect of stock liquidity on default risk is conditional on the extent of regulatory settings. Specifically, the effect is more pronounced in countries with greater creditor protection, higher levels of information sharing, a common-law tradition and efficient judicial systems.

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