Stock Liquidity and SMEs’ Likelihood of Bankruptcy: Evidence from the US Market

Research in International Business and Finance 42 (2017) 1383–1393

Posted: 25 Jan 2018

See all articles by Izidin El Kalak

Izidin El Kalak

Cardiff Business School

Alcino Azevedo

Aston Business School

Robert Hudson

Hull University Business School (HUBS)

Mohamad Nazri Abd Karim

University of Hull

Date Written: December 1, 2017

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.

Keywords: Market liquidity; Liquidity measures; Bankruptcy; Hazard model

JEL Classification: G12, G14

Suggested Citation

El Kalak, Izidin and Azevedo, Alcino and Hudson, Robert and Abd Karim, Mohamad Nazri, Stock Liquidity and SMEs’ Likelihood of Bankruptcy: Evidence from the US Market (December 1, 2017). Research in International Business and Finance 42 (2017) 1383–1393. Available at SSRN: https://ssrn.com/abstract=3103777

Izidin El Kalak (Contact Author)

Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Alcino Azevedo

Aston Business School ( email )

Econ., Finance & Enterpreneurship
Aston Business School
Birmingham, B4 7ET
United Kingdom

Robert Hudson

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

Mohamad Nazri Abd Karim

University of Hull ( email )

Cottingham Road
Hull, Great Britain HU6 7RX
United Kingdom

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