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Liquidity and default risk in China: The double-edged role of state ownership

Year: 2025

Type: article

Abstract: This study explores the impact of stock liquidity on firm default risk in China, focusing on the moderating role of state ownership. The empirical results confirm that enhanced liquidity decreases default risk; however, the interaction of state ownership weakens this relationship. Notably, state ownership strengthens the informational efficiency channel (the learning channel) but weakens the corporate governance channel, with the latter effect outweighing the former. The findings highlight the dual role of liquidity in reducing default risk and emphasize the implications of state ownership in shaping this relationship. These findings contribute to the literature on financial risk management and provide policy implications for improving corporate governance in state-controlled economies.

Source: Pacific-Basin Finance Journal

DOI: 10.1016/j.pacfin.2025.102998

Authors: Lingling Zhao, Vito Mollica, Yun Shen, Qi Liang

Institutions: Macquarie University, University of Technology Sydney, Nankai University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,090