Research on the Relations between Stock Liquidity and Capital Structure of China’s a-share Market
|School||Nanjing University of Aeronautics and Astronautics|
|Keywords||Stock liquidity Firm’s capital structure Split-share reform Refinancing conditions|
The firm’s capital structure has been a hot topic of academic research. With the development ofthe capital market, many scholars have found there are close relations between the firm’s capitalstructure and stock liquidity. On one hand, stock liquidity affects the cost of equity financing, andinduces the adjustment of firm’s financing behavior, then affects firm’s financial leverage. On theother hand, the company’s capital structure affects stock value and induces the change of transactionbehavior in the market, then affects the stock liquidity. On the basis of previous studies, this paperinvestigates the relations between the firm’s capital structure and stock liquidity.First, we summarize the determinants of firm’s capital structure and stock liquidity, then weadopt effective spread, Liu liquidity, Amihud liquidity to measure the stock liquidity, and we adopttotal debt ratio, long-term assets ratio, short-term assets ratio to measure the firm’s capital structurethrough the comparison of various indicators. Second, we analyze the interaction mechanism betweenthe firm’s capital structure and stock liquidity, then we find that capital structure and stock liquidityare affected by each other. Last, in order to overcome the endogenity and test the relationship of stockliquidity and firm’s capital structure better, we build one-sided and double-sided model, and weanalyze the impact of the non-tradable shares reform and refinancing conditions on the relationsbetween stock liquidity and the capital structure.Empirical results of single equation shows that, under the control of the other factors, stockliquidity has negative influence on the firm’s capital structure. At the same time, under the control ofthe other factors, the firm’s capital structure also has negative influence on the stock liquidity.Empirical results of simultaneous equations shows that, the bidirectional relationship between stockliquidity and firm’s capital structure is significant and negative simultaneously. Besides, our empiricalresults shows that, stock liquidity has greater negative influence on the company’s capital structureafter the non-tradable shares reform and the capital structure of firm which meet equity refinancingrequirement is more sensitive to stock liquidity.