This study investigates the impact of liquidity crises on the relationship between stock (value and size) premiums and default risk in the US market. It first examines whether financial distress can explain value and size premiums, and then, subsequently, aims to determine whether liquidity crises increase the risk of value and size premium investment strategies. The study employs a time-varying approach and a sample of US stock returns for the period between January 1982 and March 2011, a period which includes the current liquidity crisis, so as to examine the relationship between default risk, liquidity crises and value and size premiums. The findings indicate that the default premium has explanatory power for value and size and premiums, which affect firms with different characteristics. We also find that liquidity crises may actually increase the risks related to size and value premium strategies.
This study uses firm level survey data to assess whether the capital structure theory is portable to small firms in developing countries and whether family ownership and management play a role in their financing decisions. Using a sample of firms from 24 developing countries from all over the world, our main results show (i) The size of the firm is an important factor in the level of leverage; (ii) Small family firms do not follow the pecking order (iii) The country of incorporation is an important determinant for the debt financing decisions of small family firms; they are sensitive to institutional characteristics, and the macroeconomic environment variables of the country; and (iv) the difference in capital structure choices is related to management styles of small family firms.
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