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

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

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.

Citation

El Kalak, I., Azevedo, A., Hudson, R., & Abd Karim, M. (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

• Journal Article Type: Article
• Acceptance Date: Jul 3, 2017
• Online Publication Date: Jul 8, 2017
• Publication Date: 2017-12
• Deposit Date: Jul 3, 2017
• Publicly Available Date: Jan 9, 2019
• 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
• Public URL: https://hull-repository.worktribe.com/output/453178
• 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.
• Contract Date: Jul 3, 2017