Work

The dynamic effects of debtor bankruptcy on unsecured creditors' stock liquidity

Year: 2024

Type: article

Abstract: This paper explores the dynamic effects of counterparty risk on stock liquidity using data on unsecured creditors after a debtor has declared bankruptcy. Through matched pair fixed effect panel regressions, we find that liquidity for unsecured creditors reduces after such declarations but only in the short term. This is evidenced by increases in various spread measures and Kyle's (1985) lambda and decreases in the bid depth differentials between the stocks of the unsecured creditors and the matched firms. Additionally, we find the greater the credit exposure, the greater the decline in liquidity. In the long term, debtor bankruptcies appear to have no effect on spread measures. Rather, the market depth for unsecured creditor stocks improves.

Source: Journal of Financial Stability

DOI: 10.1016/j.jfs.2024.101322

Authors: Dinh Trung Nguyen, Thu Phuong Pham, Ngoc Anh Tran, Ralf Zurbruegg

Institutions: Vietnam National University, Hanoi, VNU University of Economics and Business, Curtin University, IPAG Business School, Indiana University Bloomington, Indiana University, The University of Adelaide

Language: English

Topic: Corporate Insolvency and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,370

OpenAlex ID: W4401864295

FWCI: 4.031

Cites: 59

Cited by: 4

Related to: 10