Stock liquidity and default risk around the world
Publication Name
Journal of Financial Markets
Abstract
We document the negative effect of stock liquidity on default risk for a sample of 46 countries. We further find that default risk declines following the introduction of the Directive on Markets in Financial Instruments (MiFID)—an exogenous shock that increases liquidity. The effect of liquidity on default risk is more pronounced in countries with poorer investor protection and information environments. Further, this effect is attenuated (strengthened) for firms with greater information efficiency (governance monitoring). Overall, our findings highlight the important role of regulatory settings in shaping the impact of stock liquidity on default risk in international markets.
Open Access Status
This publication is not available as open access
Volume
55
Article Number
100597
Funding Sponsor
National University of Singapore