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Stock liquidity and SMEs' likelihood of bankruptcy: Evidence from the US market

El Kalak, Izidin ORCID:, Azevedo, Alcino, Hudson, Robert and Karim, Mohamad Abd 2017. Stock liquidity and SMEs' likelihood of bankruptcy: Evidence from the US market. Research in International Business and Finance 42 , pp. 1383-1393. 10.1016/j.ribaf.2017.07.077

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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.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Elsevier
ISSN: 0275-5319
Date of Acceptance: 3 July 2017
Last Modified: 23 Oct 2022 13:46

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