Stock liquidity and SMEs’ likelihood of bankruptcy: evidence from the US market

Izidin El Kalak; Alcino Azevedo; Robert Hudson; Mohamad Abd Karim

doi:10.1016/j.ribaf.2017.07.077

Stock liquidity and SMEs’ likelihood of bankruptcy: evidence from the US market

Izidin El Kalak, Alcino Azevedo, Robert Hudson, Mohamad Abd Karim

Research output: Contribution to journal › Article › peer-review

Abstract

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.

Original language	English
Pages (from-to)	1383-1393
Journal	Research in International Business and Finance
Volume	42
Early online date	8 Jul 2017
DOIs	https://doi.org/10.1016/j.ribaf.2017.07.077
Publication status	Published - 1 Dec 2017

Bibliographical note

Keywords

market liquidity
liquidity measures
bankruptcy
hazard model

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10.1016/j.ribaf.2017.07.077

Stock liquidity and SMEs likelihood of bankruptcy
© 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 1.52 MBLicence: CC BY-NC-ND 3.0

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title = "Stock liquidity and SMEs{\textquoteright} likelihood of bankruptcy: evidence from the US market",

abstract = "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.",

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AU - Azevedo, Alcino

AU - Hudson, Robert

AU - Karim, Mohamad Abd

PY - 2017/12/1

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N2 - 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.

AB - 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.

KW - market liquidity

KW - liquidity measures

KW - bankruptcy

KW - hazard model

UR - https://www.sciencedirect.com/science/article/pii/S0275531916305062?via%3Dihub

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EP - 1393

JO - Research in International Business and Finance

JF - Research in International Business and Finance

ER -

Stock liquidity and SMEs’ likelihood of bankruptcy: evidence from the US market

Abstract

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Keywords

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