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Liquidity and default risk in China: The double-edged role of state ownership

Author

Listed:
  • Zhao, Lingling
  • Mollica, Vito
  • Shen, Yun
  • Liang, Qi

Abstract

This study explores the impact of stock liquidity on firm default risk in China, focusing on the moderating role of state ownership. The empirical results confirm that enhanced liquidity decreases default risk; however, the interaction of state ownership weakens this relationship. Notably, state ownership strengthens the informational efficiency channel (the learning channel) but weakens the corporate governance channel, with the latter effect outweighing the former. The findings highlight the dual role of liquidity in reducing default risk and emphasize the implications of state ownership in shaping this relationship. These findings contribute to the literature on financial risk management and provide policy implications for improving corporate governance in state-controlled economies.

Suggested Citation

  • Zhao, Lingling & Mollica, Vito & Shen, Yun & Liang, Qi, 2026. "Liquidity and default risk in China: The double-edged role of state ownership," Pacific-Basin Finance Journal, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:pacfin:v:95:y:2026:i:c:s0927538x2500335x
    DOI: 10.1016/j.pacfin.2025.102998
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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