The effect of stock liquidity on default risk: An empirical study of China’s capital market

Abstract

This study examines a sample of listed firms in the Chinese equity market and explores the relationship between stock liquidity and firm default risk. The empirical results of this study are as follows: (1) There is a significant negative correlation between the stock liquidity and default risk of listed companies. Additionally, for companies with a high risk of default, the effect of reducing the risk of default caused by stock liquidity is more pronounced. (2) The implementation of margin trading policies significantly improves stock liquidity and reduces firm default risk.