| Summary: | 碩士 === 國立臺灣大學 === 經濟學研究所 === 100 === Liquidity is one of the factors influencing capital structure. However, empirical evidence focusing on the linkage between liquidity and capital structure is rare. So far, the only empirical evidence is Lipson and Mortal (2009)’s paper showing that liquidity affects capital structure. Nonetheless, this article cannot prove the casual relationship between liquidity and capital structure. Therefore, the purpose of my research is to fill in this gap and show that there is a casual relationship between liquidity and capital structure. I use the change of quote system for U.S. stocks in 2001 as an exogenous shock. The change in liquidity caused by this shock can be used to identify the causal effect of liquidity on capital structure. If capital structure changes after the exogenous shock, the casual relationship between liquidity and capital structure can is proved.
The research consists of two parts. The first part is multivariate regression. After controlling different growth measures, I replicate Lipson and Mortal (2009)’s result to confirm the relationship between liquidity and capital structure. When the level of liquidity is different, liquidity’s effect on capital structure may be dissimilar. I group sample firms by quintile according to liquidity and conduct multivariate regression to confirm the nonlinear effect of liquidity on capital structure. In addition, liquidity’s effect on capital structure can be distinct in different markets and industries so I also conduct regressions to confirm these conjectures. Because literatures show that liquidity can influence capital structure through growth, I analyze the effect of liquidity on growth as a robustness test.
The second part is the effect of an exogenous shock, which is used to verify the casual effect of liquidity on capital structure. I also confirm the casual effect of liquidity on growth as a robustness test.
This study shows two main results. First, liquidity has a casual effect on capital structure. Second, the effect of liquidity on capital structure is nonlinear. The better the liquidity, the greater its influence on capital structure.
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