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Liquidity and capital structure: The case of Thailand

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  • Udomsirikul, Prasit
  • Jumreornvong, Seksak
  • Jiraporn, Pornsit

Abstract

We explore the impact of liquidity on capital structure decisions. Firms that enjoy more liquid equity experience a lower cost of equity and may be more motivated to adopt more equity and less debt in their capital structure. Consistent with this notion, the empirical evidence demonstrates an inverse relation between liquidity and leverage. Our results are especially interesting because we examine firms in Thailand, where capital markets are less sophisticated than the U.S., bank loans more prevalent, and corporate ownership much more concentrated. In spite of these differences, we document that Thai firms with more liquid equity are significantly less leveraged.

Suggested Citation

  • Udomsirikul, Prasit & Jumreornvong, Seksak & Jiraporn, Pornsit, 2011. "Liquidity and capital structure: The case of Thailand," Journal of Multinational Financial Management, Elsevier, vol. 21(2), pages 106-117, April.
  • Handle: RePEc:eee:mulfin:v:21:y:2011:i:2:p:106-117
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    References listed on IDEAS

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    Cited by:

    1. Abdul Rashid & Hira Mehmood, 2017. "Liquidity and Capital Structure: The Case of Pakistani Non-Financial Firms," Economics Bulletin, AccessEcon, vol. 37(2), pages 675-685.
    2. repec:eee:finsta:v:30:y:2017:i:c:p:79-91 is not listed on IDEAS
    3. repec:eee:ememar:v:33:y:2017:i:c:p:201-231 is not listed on IDEAS
    4. Yang, Ann Shawing & Pangastuti, Airin, 2016. "Stock market efficiency and liquidity: The Indonesia Stock Exchange merger," Research in International Business and Finance, Elsevier, vol. 36(C), pages 28-40.
    5. repec:jle:journl:160 is not listed on IDEAS
    6. repec:jle:journl:161 is not listed on IDEAS
    7. repec:jle:journl:201 is not listed on IDEAS
    8. Prommin, Panu & Jumreornvong, Seksak & Jiraporn, Pornsit & Tong, Shenghui, 2016. "Liquidity, ownership concentration, corporate governance, and firm value: Evidence from Thailand," Global Finance Journal, Elsevier, vol. 31(C), pages 73-87.

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