We study the association between the stock liquidity of SMEs in the US and their likelihood of bankruptcy, using a dataset that comprises information on 5075 firms over the time period from 1984 to 2013 using the hazard model of Campbell et al. (2008). We find that less liquid stocks are associated with higher probability of bankruptcy, although there is substantial heterogeneity across industries regarding the predictive power of the liquidity measure on the likelihood of bankruptcy. Furthermore, the exchange where the SMEs are listed also affects the likelihood of bankruptcy. Classification performance tests conclude that adding a liquidity measure variable to the Campbell et al. (2008) model improves its predictive power.
Bibliographical note© 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
- market liquidity
- liquidity measures
- hazard model
El Kalak, I., Azevedo, A., Hudson, R., & Karim, M. A. (2017). Stock liquidity and SMEs’ likelihood of bankruptcy: evidence from the US market. Research in International Business and Finance, 42, 1383-1393. https://doi.org/10.1016/j.ribaf.2017.07.077