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Full-Text Articles in Business
Stock Liquidity And Default Risk Around The World, Sivathaasan Nadarajah, Huu Nhan Duong, Searat Ali, Benjamin Liu, Allen Huang
Stock Liquidity And Default Risk Around The World, Sivathaasan Nadarajah, Huu Nhan Duong, Searat Ali, Benjamin Liu, Allen Huang
Faculty of Business - Papers (Archive)
We document the negative effect of stock liquidity on default risk for a sample of 46 countries. We further find that default risk declines following the introduction of the Directive on Markets in Financial Instruments (MiFID)—an exogenous shock that increases liquidity. The effect of liquidity on default risk is more pronounced in countries with poorer investor protection and information environments. Further, this effect is attenuated (strengthened) for firms with greater information efficiency (governance monitoring). Overall, our findings highlight the important role of regulatory settings in shaping the impact of stock liquidity on default risk in international markets.
Effect Of Corporate Tax Avoidance Activities On Firm Bankruptcy Risk, Anirudh Dhawan, Liangbo Ma, Maria H. Kim
Effect Of Corporate Tax Avoidance Activities On Firm Bankruptcy Risk, Anirudh Dhawan, Liangbo Ma, Maria H. Kim
Faculty of Business - Papers (Archive)
Corporate tax avoidance has been shown to raise the cost of bank debt and lower credit and bond ratings. However, it is unclear whether tax avoidance actually increases a firm’s bankruptcy risk or whether it is just viewed negatively by banks and rating agencies. We find that firms engaging in tax avoidance and firms that are thinly capitalized face higher bankruptcy risk. To account for endogeneity and functional form misspecification, we verify our results using instrumental variable and propensity score matching methods. Our findings are consistent with the view that tax avoidance is a risk-enhancing activity.