Stock Liquidity and Capital Structure: Evidence from NSE Listed Top 100 Non-Finance Indian Firms

Abstract

This study has investigated the influence of the stock liquidity (measured by Amihud’s illiquidity) of a company on its capital structure using the top 100 non-finance firms listed in the NSE from 2010-11 to 2019-20. Using the fixed-effect panel regression model, the study has established that illiquidity has a significant affirmative influence on the book and market leverage. Furthermore, the findings reveal that turnover representing the business size and return on assets have adverse associations with both book and market leverage. Moreover, asset tangibility bears a positive influence on book leverage. The results endorse the usefulness of the notion of Peckingorder in the context of Indian companies.

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“…Additionally, SL enables firms to attract more investments, raise their funds by issuing new stocks, and diminish their capital costs (Al-Jaifi, 2017; Khan et al, 2022). Prior studies proved the implications of SL in many aspects such as firms' dividends (e.g., Michaely and Qian, 2022;Stereńczak and Kubiak, 2022), cash holdings (e.g., Nyborg and Wang, 2021;Im et al, 2022), firm's value (e.g., Jawed and Kotha, 2022;Shamsic et al, 2022), capital structure (e.g., Dang et al, 2019;Dutta et al, 2022), corporate diversification (e.g., Gu et al, 2018), cost of capital (e.g., Amihud et al, 2015;Rahman and Rajib, 2018), and firms' performance (e.g., Boloupremo, 2020;Chabachib et al, 2020). As a consequence, SL is a crucial area of interest whether in the field of stock markets or the field of firms.…”