Liquidity and Capital Structure: Evidence from a Bank-dominated Economy

28 Pages Posted: 16 Dec 2010 Last revised: 2 Nov 2011

See all articles by Prasit Udomsirikul

Prasit Udomsirikul

Exxon Mobil (Thailand)

Seksak Jumreornvong

Thammasat University

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Date Written: October 25, 2011

Abstract

We explore the impact of liquidity on capital structure decisions. Firms that enjoy more liquid equity experience a lower cost of equity and may be more motivated to adopt more equity and less debt in their capital structure. Consistent with this notion, the empirical evidence demonstrates an inverse relation between liquidity and leverage. Our results are especially interesting because we examine firms in Thailand, where capital markets are less sophisticated than the U.S., bank loans more prevalent, and corporate ownership much more concentrated. In spite of these differences, we document that Thai firms with more liquid equity are significantly less leveraged.

Keywords: capital structure, leverage, Thailand, corporate financing

JEL Classification: G12, G32

Suggested Citation

Udomsirikul, Prasit and Jumreornvong, Seksak and Jiraporn, Pornsit, Liquidity and Capital Structure: Evidence from a Bank-dominated Economy (October 25, 2011). Available at SSRN: https://ssrn.com/abstract=1725745 or http://dx.doi.org/10.2139/ssrn.1725745

Prasit Udomsirikul

Exxon Mobil (Thailand) ( email )

Thailand

Seksak Jumreornvong

Thammasat University ( email )

Bangkok, 10200
Thailand

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

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