A Study On Stock Liquidity And Capital Structure Of Listed Companies In China

Stock liquidity and capital structure are two hot problems in financial economics study.Based on theory of financial market microstructure and theory of corporate finance,we links stock liquidity with firm's capital structure to investigate their bidirectional relationship.We argue that stock liquidity and capital structure are affected by each other.On one hand,stock liquidity affects cost of capital through asset pricing process,and induces the adjustment of firm's financing behavior,then affects firm's financial lererage.Firms with more(less) liquid equity tend to have lower (higher) leverage.On the other hand,the change in leverage affects stock's value and induces the change of transaction behavior in the market,then affects the stock liquidity.An increase(decrease) in leverage is associated with a decrease(increase) in stock liquidity.We also use a sample on Chinese stock markets to explore the empirical relationship between stock liquidity and leverage.Some conclusions from our empirical results can be made:(1) Stock liquidity has a significant and robust negative effect on leverage after controlling other factors,which is consistent with the first hypothesis.(2) The change in leverage has a significant and robust negative effect on the change in stock liquidity after controlling other factors,which is consistent with the second hypothesis.(3)The bidirectional relationship between stock liquidity and financial leverage is significant and negative simultaneously.(4) Besides stock liquidity,asset tangibility,logarithm of total assets,non-debt tax shields, retained earing ratio,outshare ratio and growth opportunities are the important determinants of leverage of listed firms in China.Besides levarege,risk of stock return,trading volume,firm size and outshare ratio are the important determinants of stock liquidity in China.