Taming the Dark Side of Asset Liquidity: The Role of Short-Term Debt

61 Pages Posted: 26 Jan 2018

See all articles by Guan-Ying Huang

Guan-Ying Huang

Southwestern University of Finance and Economics (SWUFE) - School of Finance

Henry Hongren Huang

National Central University at Taiwan

Chun I. Lee

Loyola Marymount University - Department of Finance and Computer Information Systems

Date Written: January 24, 2018

Abstract

Using one composite and five alternative measures of asset liquidity, we examine the role of short-term debt in taming the dark side of asset liquidity: the negative effect of high asset liquidity facing unsecured bondholders. Addressing the joint determination of leverage and debt maturity, the evidence from simultaneous-system-of-equations models indicates that the negative effect is mitigated by short-term debt. This mitigating role of short-term debt is further shown to be more effective during the financial crisis and for firms with poor performance, adding new evidence that short-term debt help to resolve the agency conflicts facing unsecured debtholders.

Keywords: Asset Liquidity, Leverage, Debt Maturity

JEL Classification: G30, G32, G33

Suggested Citation

Huang, Guan-Ying and Huang, Henry Hongren and Lee, Chun I., Taming the Dark Side of Asset Liquidity: The Role of Short-Term Debt (January 24, 2018). Available at SSRN: https://ssrn.com/abstract=3109191 or http://dx.doi.org/10.2139/ssrn.3109191

Guan-Ying Huang (Contact Author)

Southwestern University of Finance and Economics (SWUFE) - School of Finance ( email )

Chengdu, 610074
China

Henry Hongren Huang

National Central University at Taiwan ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

Chun I. Lee

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

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