Stock Liquidity And Default Risk

In recent years,default incidents happen frequently,and the identification of default risk is increasingly important.At present,the identification methods of default risk are mostly based on low frequency financial data,which may lead to inaccurate identification.Stock liquidity is a relatively high frequency variable.If the relationship between stock liquidity and default risk could be explored,stock liquidity can be used as a real-time and publicly visible signal to help companies' internal and external stakeholders better identify and manage the risk.This paper is based on the overall sample of all A-share listed companies,crossing the period 1997-2016.Firstly,using univariate analysis and panel regression analysis to explore the correlation between stock liquidity and default risk of the overall sample and the industry sub-sample.Secondly,considering the endogenous problem that reverse causality may cause,this paper further tests it by difference-in-differences(DID)analysis.Finally,this thesis explores the factors that may affect the correlation between stock liquidity and default risk.The empirical study shows that there is a significant negative correlation between stock liquidity and default risk,and the negative correlation exists on the whole economy.After the full circulation reform,the negative correlation between stock liquidity and default risk is enhanced.In addition,because of the imperfect mechanism,the implementation of equity incentive cannot significantly enhance the negative correlation between stock liquidity and default risk.It may even weaken the negative correlation between the two.