CEU Electronic Theses and Dissertations, 2009
| Author | Khapko, Mariana |
|---|---|
| Title | The Impact of Stock Market Liquidity on Corporate Finance Decisions |
| Summary | In this thesis I examine whether stock market frictions affect corporate financing behavior. In a simple model of firm valuation I show how the costs of illiquidity, if investors require to be compensated for them by higher returns, should affect the capital structure of the firm. I predict that the degree of illiquidity associated with the firm’s stock should influence the target leverage and capital structure adjustments the firm undertakes. To identify the impact of stock market frictions on corporate financing I use liquidity measures proposed by empirical asset pricing literature as proxies for transaction costs faced by investors and relate them to corporate capital structures. My empirical results confirm that financing behavior is influenced by the illiquidity of the firm’s stock. In particular, I find that liquidity affects the dynamic capital structure decisions. Faced with the need to attract new capital, less liquid firms are more likely to issue debt. Market imperfections thus do play a role in determining a firm’s financing choice. |
| Supervisor | Kondor, Péter |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2009/khapko_mariana.pdf |
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