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

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

Authors

Mohamad Abd Karim

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.

Journal Article Type Article
Publication Date 2017-12
Journal Research in international business and finance
Print ISSN 0275-5319
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 42
Pages 1383-1393
DOI https://doi.org/10.1016/j.ribaf.2017.07.077
Keywords Market liquidity, Liquidity measures, Bankruptcy, Hazard model
Publisher URL http://www.sciencedirect.com/science/article/pii/S0275531916305062
Additional Information This is the accepted manuscript of an article published in Research in international business and finance, 2017. The version of record is available at the DOI link in this record.

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Copyright Statement
©2019, Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/



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