Stock liquidity and capital structure: evidence from Saudi listed firms

摘要

In this paper, we investigate the impact of stock liquidity on the capital structure of Saudi non-financial firms during the period 2007-2018. Prior literature indicates that firms with more liquid stocks tend to prefer equity over debt, due to their lower cost of equity. Our findings do not support this argument, as we show that stock liquidity has an insignificant effect on leverage. The results persist after accounting for the possible endogeneity of stock liquidity in the leverage model. We also find an insignificant impact of firm size on the relation between stock liquidity and leverage.