This paper examines the impact of stock liquidity on firm bankruptcy risk. Using the Securities and Exchange Commission decimalization regulation as a shock to stock liquidity, we establish that enhanced liquidity decreases default risk. Stocks with the highest default risk experience the...

We use the SEC Tick Size Pilot Program to show that stock liquidity reduces the cost of bank loans. Treated firms experience a 52 basis point increase in the cost of borrowing during the Tick Size Pilot Program; an effect that reverses when the program ends. We find similar results in a broad...

We examine how liquidity in the equity market affects bank lending costs. An exogenous decrease in liquidity during the SEC Tick Size Pilot Program raises corporate bank borrowing costs; an effect that reverses when the program ends. We find similar results in a broad panel of firms using both...

Are endogenous liquidity providers (ELPs) reliable in times of market stress? We examine the activity of a common ELP type – high frequency traders (HFTs) – around extreme price movements (EPMs). We find that on average HFTs provide liquidity during EPMs by absorbing imbalances created by...

We develop a parsimonious liquidity-adjusted downside capital asset pricing model to investigate if phenomena such as downward liquidity spirals and flights to liquidity impact expected asset returns. We find strong empirical support for the model. Downside liquidity risk (sensitivity of stock...

Using the staggered entry of Chi-X in 12 European equity markets as a source of exogenous variation in high frequency trading (HFT), we find that HFT causes significant increases in co-movement in returns and in liquidity. About one-third of the increase in return co-movement is due to faster...